What is the term for an agreement where the reinsurer accepts the portion of the risk beyond the ceding company's retention?

What is the term for an agreement where the reinsurer accepts the portion of the risk beyond the ceding company's retention?

• A. Reinsurance
• B. Retrocession
• C. Facultative
• D. Treaty

Answer: (A)

Reinsurance is the arrangement where the reinsurer takes on the portion of risk beyond the ceding company’s retention. The ceding company keeps a certain amount of risk on its books (the retention), and anything above that threshold is transferred to the reinsurer in exchange for a premium. This mechanism increases underwriting capacity, helps stabilize losses and results, and protects the ceding company from large or tail-heavy claims. Facultative reinsurance refers to coverage on a single risk, while treaty reinsurance covers a portfolio of risks under a standing agreement. Retrocession is when a reinsurer passes part of its risk to another reinsurer. Thus, the term described is reinsurance.

Reinsurance is the arrangement where the reinsurer takes on the portion of risk beyond the ceding company’s retention. The ceding company keeps a certain amount of risk on its books (the retention), and anything above that threshold is transferred to the reinsurer in exchange for a premium. This mechanism increases underwriting capacity, helps stabilize losses and results, and protects the ceding company from large or tail-heavy claims. Facultative reinsurance refers to coverage on a single risk, while treaty reinsurance covers a portfolio of risks under a standing agreement. Retrocession is when a reinsurer passes part of its risk to another reinsurer. Thus, the term described is reinsurance.