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A reinsurance agreement that obligates the reinsurer to accept a specified share of all policies within a defined class is called
Treaty reinsurance
In facultative reinsurance, the reinsurer has the option to
Accept or reject each risk individually
what do you call the insurance company that initially underwrites the policy and then passes some of the risk to another insurer?
ceading company
Who is a retrossionaire
a reinsurer who accepts the risk
Why is retrocession used
To spread Risk further
Which type of reinsurance gives the primary insurer the greatest control over which risks are ceded?
Facultative reinsurance
If an insurance company never has total claims that cross its loss ratio limit, how much does the reinsurer pay?
Nothing
"Metro Life Assurance in Bengaluru sold a 10-year life insurance policy to a 30-year-old. They collected the first year's premium. Is this premium entirely 'income' for Metro Life Assurance in that first year?"
No, typically only the portion of the premium that covers the cost of insurance for that specific year (earned premium) is recognized as income; the rest often goes towards reserves for future liabilities or investment.
"An 'Accident Shield' motor insurance policyholder in Bengaluru just paid their annual premium of ₹12,000. Accident Shield immediately puts ₹8,000 of that into a special fund to cover potential future claims for all its policyholders. Is that ₹8,000 an 'expense' for Accident Shield when they put it into the fund?"
No, setting aside funds into a reserve is an asset on the balance sheet, not an immediate expense, as it's money put aside to meet future obligations, not a payment made.
"CareWell Health Insurance in Bengaluru has a team of very experienced doctors and nurses who review complex medical claims. Their salaries are a significant cost. Are these salaries a 'claim payment' expense for CareWell Health Insurance?"
No, these salaries are operating expenses (specifically, administrative/staff costs), not direct claim payments, as they relate to running the business and processing claims, not the actual payout to the policyholder or medical provider.
What does a Stop Loss Reinsurance (Excess of Loss Ratio) protect an insurance company against?
Many small claims adding up to a big total
An insurer has an Excess of Loss Reinsurance treaty with a retention limit. If the insurer’s actual loss is less than the retention, who pays the claim?
The insurer pays the claim in full.
Where is retrocession commonly used
Catastrophic Events
Quota share reinsurance is suitable when
Risk sharing and stable support
What are the risks in retrocession
Credit Risk
What is the purpose of a "cut through" clause in a reinsurance treaty?
to provide a direct relationship between the reinsurer and the insured.
An insurance company has an Excess of Loss Reinsurance treaty with a retention of ₹10 crore per risk and cover up to ₹40 crore in excess of the retention. If a single loss amounts to ₹42 crore, how much will the reinsurer pay under this treaty?
₹32 crore
In a 60% quota share agreement,how much of the premium is retained by the ceding company
40%
SecureFuture Life, an insurer in Bengaluru, collects ₹60,000 as an annual premium from a new policyholder for coverage from July 1, 2025, to June 30, 2026. By December 31, 2025, what portion of this premium would generally be recognized as 'earned income' for SecureFuture, and what happens to the rest from an accounting perspective
By December 31, 2025, ₹30,000 (6 months) would be "earned income." The remaining ₹30,000 is classified as an "unearned premium" liability on SecureFuture's balance sheet, recognized as income as time passes.
Star Life Insurance Co. issued several large-value life insurance policies totaling ₹500 crore. To manage its exposure, the company entered into an agreement with Shield Reinsurance Ltd. under which Shield would automatically accept a portion of all similar life insurance policies issued by Star Life Insurance over the next year.
Based on this scenario, answer the following:
A key feature of treaty reinsurance, not typically seen in facultative reinsurance, is:
Treaty reinsurance automatically covers all the risks that fit the agreement without checking each one individually. Facultative reinsurance looks at and approves each risk one by one
Background: "SwiftCare Health Insurance, a mid-sized insurer headquartered in Bengaluru, is experiencing rapid growth in new policy sales, with a 15% increase in premium income this quarter (Q3 2025). However, concurrently, there's been a noticeable rise in the average cost of medical treatments due to inflation and new healthcare technologies. Additionally, SwiftCare recently invested heavily in expanding its sales force across Karnataka to achieve this growth, incurring higher commission and training costs."
Question: "Analyze how these three factors – increased premium income, rising medical treatment costs, and higher sales force expenses – will likely interact to affect SwiftCare Health Insurance's overall profitability for this quarter. Beyond just identifying income and expenses, discuss which of these factors might pose the greatest challenge to their underwriting profit specifically, and what SwiftCare's management needs to monitor closely to maintain financial health."
ABC General Insurance Company has arranged a multi-layer Excess of Loss Reinsurance programme for large industrial fire losses. The company retains the first ₹20 crore of any claim. Losses above this are covered by two layers: the first layer provides ₹50 crore in excess of the retention, and the second layer provides an additional ₹80 crore in excess of the first layer. If there is a total insured loss of ₹135 crore, how much will be paid by the second Excess of Loss reinsurer?
₹65 crore
Background: "FutureEdge Life & General, an established insurer in Bengaluru, completed a major digital transformation project six months ago (January 2025). This involved a significant upfront investment in AI-driven claims processing, an enhanced customer portal, and back-office automation. While they have seen a slight increase in new policy sales through digital channels, the expected reductions in call center volume and manual processing staff have been slower than anticipated, meaning their operational expenses haven't decreased as much as projected yet. Customer satisfaction, however, has subtly improved due to faster digital services."
Question: "From a financial perspective, explain why FutureEdge's digital transformation might not be showing immediate, dramatic cost savings despite improved customer satisfaction. Identify two potential indirect long-term income benefits that could arise from the improved customer satisfaction and digital capabilities, even if direct expense reductions are slow. What metrics, beyond just immediate cost savings, should FutureEdge's finance team prioritize to assess the ultimate Return on Investment (ROI) of this transformation?"
FutureEdge's immediate cost savings are slow because initial IT investment and temporary staffing costs offset expected operational efficiencies. Automation often requires a transition period for full realization. Long-term income benefits from improved customer satisfaction include: higher policy retention rates (reduced lapses, boosting recurring premium income) and increased cross-selling/upselling opportunities due to better engagement. Key ROI metrics include customer lifetime value, renewal rates, and Net Promoter Score (NPS) in addition to traditional expense ratios