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Which of the following reinsurance category is usually not short tailed? - Insurance Institute Of India - 2010

It is an MCQ
1.Treaty Property Proportional.
2.Treaty Property Excess.
3.Facultative Property.
4.Treaty Casualty Proportional.

Asked On2017-11-01 15:06:02 by:Divyanshu-Changkakoti

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Reinsurance can be divided into two basic categories: treaty and facultative. Treaties are agreements that cover broad groups of policies such as all of a primary insurer’s auto business. Facultative covers specific individual, generally high-value or hazardous risks, such as a hospital, that would not be accepted under a treaty.

In most treaty agreements, once the terms of the contract, including the categories of risks covered, have been established, all policies that fall within those terms – in many cases both new and existing business—are covered, usually automatically, until the agreement is cancelled.

With facultative reinsurance, the reinsurer must underwrite the individual “risk,” say a hospital, just as a primary company would, looking at all aspects of the operation and the hospital’s attitude to and record on safety. In addition, the reinsurer would also consider the attitude and management of the primary insurer seeking reinsurance coverage. This type of reinsurance is called facultative because the reinsurer has the power or “faculty” to accept or reject all or a part of any policy offered to it in contrast to treaty reinsurance, under which it must accept all applicable policies once the agreement is signed.

Treaty and facultative reinsurance agreements can be structured on a “pro rata” (proportional) or “excess-of-loss” (non proportional) basis, depending on the arrangement by which losses are apportioned between the two insurers.

In a proportional agreement, most often applied to property coverages, the reinsurer and the primary company share both the premium from the policyholder and the potential losses.

In an excess of loss agreement, the primary company retains a certain amount of liability for losses (known as the ceding company’s retention) and pays a fee to the reinsurer for coverage above that amount, generally subject to a fixed upper limit. Excess of loss agreements may apply to individual policies, to an event such as a hurricane that affects many policyholders or to the primary insurer’s aggregate losses above a certain amount, per policy or per year.

A primary company’s reinsurance program can be very complex. Simply put, if it were diagrammed, it might look like a pyramid with ascending dollar levels of coverage for increasingly remote events, split among a number of reinsurance companies each assuming a portion. It would include layers of proportional and excess of loss treaties and possibly a facultative excess of loss layer at the top.

Answerd on:2019-06-21 Answerd By:kethan-vemuri

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