Which term describes the portion of risk transferred from the primary insurer to another company under a reinsurance agreement?

Which term describes the portion of risk transferred from the primary insurer to another company under a reinsurance agreement?

• A. Reinsurance
• B. Reassurance
• C. Retrocession
• D. Quotation

Answer: (A)

Transferring risk from the primary insurer to another company under a reinsurance agreement is called reinsurance. In this arrangement the primary insurer cedes a portion of its risk to a reinsurer in exchange for a premium. The reinsurer then shares in some of the potential losses, helping the primary insurer reduce exposure, stabilize results, and manage capital. Retrocession is when a reinsurer, in turn, passes part of its assumed risk to another reinsurer, which is a separate step in the risk transfer chain. Quotation is simply a price quote for coverage, not a mechanism for transferring risk. Reassurance isn’t the standard term used for this transfer in formal contracts.

Transferring risk from the primary insurer to another company under a reinsurance agreement is called reinsurance. In this arrangement the primary insurer cedes a portion of its risk to a reinsurer in exchange for a premium. The reinsurer then shares in some of the potential losses, helping the primary insurer reduce exposure, stabilize results, and manage capital.

Retrocession is when a reinsurer, in turn, passes part of its assumed risk to another reinsurer, which is a separate step in the risk transfer chain. Quotation is simply a price quote for coverage, not a mechanism for transferring risk. Reassurance isn’t the standard term used for this transfer in formal contracts.