Insurance Awareness - Reinsurance
Which of the following best explains the main advantage of treaty reinsurance for an insurer?
Which of the following best explains the main advantage of treaty reinsurance for an insurer?
medium Q5 of 15
Step-by-Step Solution
Step 1: Understand treaty reinsurance benefits
Treaty reinsurance allows automatic sharing of risks for a whole portfolio, increasing the insurer's capacity and financial stability.Step 2: Evaluate options
Selective risk transfer on a case-by-case basis describes facultative reinsurance. Elimination of all underwriting responsibilities is incorrect as underwriting remains the insurer's responsibility. Guarantee of profit from all ceded policies is false; profit is not guaranteed.Final Answer:
Automatic risk sharing for an entire portfolio, enhancing capacity → Option CQuick Check:
Treaty reinsurance helps insurers manage large portfolios efficiently and increase underwriting capacity.
Quick Trick: Treaty = Capacity enhancement via automatic risk sharing.
Common Mistakes:
MISTAKES- Assuming treaty eliminates underwriting or guarantees profit.
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