Reinsurance Operations

Introduction and Context

Life insurers accept large and heterogeneous portfolios of mortality, morbidity, longevity, investment and operational risks. Although diversification reduces volatility, a single insurer may still face exposures that exceed its financial capacity, risk appetite or regulatory limits. Reinsurance is the contractual transfer of part of an insurer’s insurance risk to another insurer, known as the reinsurer. The original insurer is the cedant or ceding company.

Reinsurance is not merely a method of reducing claims volatility. It also supports underwriting capacity, capital efficiency, product innovation, catastrophe protection, geographic diversification and financial resilience. However, it introduces contractual, operational, credit, legal and basis risks. Effective reinsurance operations therefore require coordination among underwriting, actuarial, finance, claims, legal, risk, treasury and information-technology functions.

This chapter examines treaty and facultative reinsurance, proportional and non-proportional structures, operational processing, claims recoveries, bordereaux, reconciliations, counterparty exposure and governance.

Learning Objectives

By the end of this chapter, the reader should be able to:

1. Distinguish treaty from facultative reinsurance.
2. Explain quota-share, surplus, excess-of-loss and catastrophe arrangements.
3. Calculate basic cessions, retentions, premiums and recoveries.
4. Design operational controls for bordereaux, claims and settlements.
5. Evaluate reinsurer counterparty exposure and collateral requirements.
6. Analyse the managerial, regulatory and ethical implications of reinsurance decisions.

1. The Architecture of Reinsurance

A reinsurance transaction has two separate legal relationships. The policyholder contracts with the insurer, while the insurer contracts with the reinsurer. In ordinary circumstances, the policyholder has no direct contractual claim against the reinsurer. This is the principle of privity of contract, subject to local law, insolvency rules and any cut-through or direct-action provision.

The insurer remains responsible to the policyholder even when it has ceded risk. Reinsurance therefore does not transfer the insurer’s service obligations, claims-handling duties or regulatory accountability. It transfers specified economic consequences under defined contractual terms.

Important participants include:

• Cedant: the insurer transferring risk.
• Reinsurer: the party accepting reinsured risk.
• Retrocessionaire: a reinsurer to which the reinsurer transfers part of its exposure.
• Broker: an intermediary that arranges placement, negotiation and administration.
• Managing general agent or coverholder: an authorised underwriting or administrative intermediary in some markets.
• Retrocession: reinsurance purchased by a reinsurer.
• Cession: the portion of an original risk transferred to a reinsurer.
• Retention: the portion retained by the cedant.
• Reinsurance premium: consideration paid by the cedant for protection.
• Reinstatement: restoration of cover after a loss has exhausted all or part of a limit, usually for an additional premium.

Reinsurance arrangements are commonly classified along two dimensions:

2. Treaty and Facultative Reinsurance

Treaty reinsurance

A treaty is a standing agreement under which the reinsurer automatically accepts risks falling within an agreed class, territory, period and underwriting rules. The cedant normally has a duty to cede risks within the treaty scope, and the reinsurer has a corresponding obligation to accept them, subject to exclusions and capacity limits.

Treaties are efficient for large portfolios because individual negotiations are unnecessary. They also promote consistency and predictable administration. Their disadvantages include reduced flexibility, possible accumulation of poorly understood risks and dependence on the quality of the cedant’s underwriting controls.

Treaties may be:

• Obligatory: both parties are required to cede and accept qualifying risks.
• Facultative-obligatory: the cedant may offer risks, while the reinsurer must accept qualifying risks offered within the contract.
• Open cover: risks are offered individually and acceptance remains discretionary, despite a broader framework.

Facultative reinsurance

Facultative reinsurance is negotiated separately for an individual risk or a defined small group of risks. The reinsurer assesses the proposal, underwriting evidence, terms, premium and requested share before accepting or declining it.

Facultative cover is useful for exceptionally large sums assured, unusual occupations, impaired lives, hazardous locations, new products or risks outside treaty limits. It allows specialist underwriting, but it is slower, more expensive to administer and vulnerable to gaps if placement is not completed before policy inception.

A facultative submission generally contains the applicant’s age, occupation, medical evidence, sum assured, policy term, benefits, premium, claims history, proposed retention and relevant hazard information. The cedant must verify that the final acceptance corresponds to the written facultative terms.

3. Proportional Reinsurance

Under proportional reinsurance, premiums and losses are divided between cedant and reinsurer in an agreed proportion, subject to treaty conditions. The basic relationship is:

For a proportional share of α, where 0 ≤ α ≤ 1:

The formulas assume that the covered amount is within the treaty definition and that no special limits, exclusions or sliding commissions alter the result.

3.1 Quota-share reinsurance

In quota-share reinsurance, the reinsurer accepts a fixed percentage of every risk within the treaty scope. If the quota share is 40%, the reinsurer receives 40% of covered premiums and pays 40% of covered claims, regardless of the size of each individual risk, subject to treaty limits.

A quota-share treaty can provide rapid capital relief and support a growing insurer with limited underwriting history. It may also transfer a substantial share of profitable business, making it expensive if the cedant could have retained the risk safely. Commission paid by the reinsurer to the cedant may compensate the cedant for acquisition and administration costs. A sliding-scale commission varies with loss experience, while a fixed commission does not.

#### Worked example: quota share

An insurer writes a life policy with a covered sum assured of CU 500,000 under a 40% quota-share treaty. The annual premium is CU 8,000 and a covered death claim is CU 500,000.

Reinsurer’s share of sum assured = 0.40 × CU 500,000 = CU 200,000.

Cedant’s retained sum assured = CU 300,000.

Reinsurer’s premium = 0.40 × CU 8,000 = CU 3,200.

Reinsurer’s claim share = 0.40 × CU 500,000 = CU 200,000.

This example assumes the policy is fully within the treaty and that claim payment follows the same proportional basis.

3.2 Surplus reinsurance

Surplus reinsurance is proportional, but the cedant retains a fixed monetary amount called a line, while the reinsurer accepts the amount above that retention up to a treaty capacity. The cedant’s retention is therefore more stable in monetary terms than under quota share.

If the original sum assured is S and the cedant’s line is L, the number of lines is:

In practice, the cession is capped by the treaty’s maximum number of lines, and the cedant may retain a minimum one-line share. For a risk of CU 900,000, a retention line of CU 100,000 and a treaty capacity of eight lines, the risk equals nine lines. The treaty can accept only eight lines; the cedant must retain one line or arrange additional facultative cover, depending on the contract.

For a risk of CU 500,000 and a CU 100,000 line, the cedant retains CU 100,000 and the reinsurer accepts CU 400,000, or four reinsurer lines. The reinsurer’s proportional share is 80%.

Surplus treaties are attractive where policy amounts vary widely. They allow the cedant to retain small risks fully while limiting its exposure to large risks. Administration is more complex because each cession depends on the relationship between the policy amount and the retention line.

4. Non-Proportional Reinsurance

Under non-proportional reinsurance, the reinsurer’s payment depends on the amount or severity of loss rather than a fixed percentage of every policy. Premium is commonly negotiated as a rate on a defined premium base, such as expected treaty subject premium.

4.1 Excess-of-loss reinsurance

An excess-of-loss contract responds when a covered loss exceeds a specified attachment point, or retention, up to a stated limit. For a single loss X, retention R and limit L, recovery is:

Here X, R and L are measured in the same currency and relate to the same loss definition. The formula assumes a single covered loss and ignores reinstatement premiums, deductibles, exclusions and claims adjustment expenses unless the contract includes them.

Example: A life excess-of-loss layer has a retention of CU 1,000,000 and a limit of CU 2,000,000. A covered net loss of CU 2,400,000 produces:

Recovery = min(max(CU 2,400,000 − CU 1,000,000, 0), CU 2,000,000)

= min(CU 1,400,000, CU 2,000,000) = CU 1,400,000.

The cedant retains CU 1,000,000. If the loss were CU 4,000,000, recovery would be capped at CU 2,000,000 and the cedant would bear CU 2,000,000 above the layer, unless another layer applied.

Layers are often expressed as “CU 2 million excess of CU 1 million”. Multiple layers can be arranged, for example:

A CU 5 million covered loss would recover CU 2 million from layer 1 and CU 2 million from layer 2, leaving CU 1 million retained above the purchased protection.

4.2 Catastrophe reinsurance

Catastrophe, or catastrophe excess-of-loss, cover protects against an accumulation of losses arising from one event or a defined series of events. In life insurance, examples may include deaths caused by an earthquake, flood, pandemic, industrial accident or terrorist event, subject to the contract’s event definition and exclusions.

A catastrophe treaty may be written on an event basis or an hours clause basis. The hours clause specifies the maximum time window within which losses may be aggregated as one occurrence. Precise event definition is essential: disputes may arise over whether a pandemic is one event, multiple events or an excluded systemic risk.

Catastrophe cover should be assessed using exposure accumulation data, geographic concentration, mortality assumptions, scenario analysis and probable maximum loss estimates. It does not replace ordinary risk selection or concentration management.

5. Premiums, Commissions and Contract Terms

Reinsurance premium may be determined as a percentage of ceded premium, a rate on line, a risk-adjusted amount or a negotiated fixed premium. For non-proportional cover, a simplified rate-on-line relationship is:

Thus, a premium of CU 600,000 for a limit of CU 10,000,000 gives a rate on line of 6%. The calculation assumes that premium and limit are expressed in the same currency and that the quoted premium relates only to that layer.

Important contractual provisions include:

• risk definition and covered benefits;
• territorial and jurisdictional scope;
• inception, expiry and cancellation provisions;
• exclusions and communicable-disease wording;
• underwriting and claims cooperation clauses;
• notice requirements;
• claims control or claims cooperation rights;
• premium payment terms;
• commissions and profit commissions;
• reinstatement provisions;
• currency and exchange-rate rules;
• offset and set-off rights;
• insolvency and security provisions;
• audit rights and record-retention duties;
• dispute resolution and governing law.

The follow-the-fortunes principle may require the reinsurer to follow the cedant’s good-faith settlement decisions within the scope of the contract. It does not normally require the reinsurer to pay claims outside the treaty or claims settled fraudulently or in bad faith.

6. Operational Processing of Cessions

Reinsurance operations transform underwriting and claims data into legally and financially reliable records. The process normally includes:

1. Identify whether the policy falls within treaty scope.
2. Determine the ceded amount or layer exposure.
3. Calculate ceded premium and applicable commission.
4. Create a reinsurance record linked to the original policy.
5. Issue bordereaux or other periodic reports.
6. Reconcile records with the general ledger and reinsurer statements.
7. Update the record for endorsements, lapses, reinstatements, cancellations and claims.
8. Monitor treaty capacity, exclusions and exposure accumulations.

A robust system should preserve the original policy identifier, treaty identifier, reinsurer, risk inception date, currency, sum assured, retained amount, ceded amount, premium, commission, claim status and settlement history. Manual spreadsheets may be acceptable for exceptional facultative placements, but they require controlled access, version management and independent review.

Bordereaux

A bordereau is a periodic schedule of risks, premiums, claims or other contract activity. A premium bordereau may contain policy number, product, issue date, age, sum assured, premium, retention, cession, currency and treaty section. A claims bordereau may include date of death, cause of death, policy status, gross claim, retained claim, ceded claim, documents received and recovery requested.

Bordereaux should be:

• complete and contractually compliant;
• consistent with the policy administration system;
• submitted according to agreed frequency and deadlines;
• supported by audit trails;
• protected against unauthorised alteration;
• reconciled to accounting entries.

Reconciliations

A reconciliation compares two independent records and explains differences. A premium reconciliation may be stated as:

The equation is an accounting control identity. All components must be measured for the same reinsurer, treaty, period and currency basis. Differences may arise from timing, endorsements, exchange rates, rejected bordereaux, duplicate records, unallocated cash or contract interpretation.

Unresolved differences should be aged, assigned to an owner and escalated according to materiality. Netting differences without investigation can conceal errors or inappropriate claims recoveries.

7. Claims Recoveries

When a claim occurs, the cedant should establish gross policy liability, treaty applicability, retained amount, ceded amount and required notice. Claims procedures should address both prompt policyholder service and preservation of reinsurance rights.

For a proportional treaty:

For an excess-of-loss treaty, the recovery formula above applies after determining the contractually defined net loss. Recoverable claims should be recorded separately from gross claims payable because a reinsurer recovery is not equivalent to cash received.

A recovery ledger should track:

• claim reference and policy reference;
• treaty and reinsurer;
• gross claim amount;
• ceded or layer amount;
• currency and exchange rate;
• notice date;
• documents outstanding;
• amount admitted or disputed;
• cash received;
• balance outstanding;
• impairment or expected credit loss assessment.

The cedant should not delay valid policyholder claims merely because the reinsurer has not agreed the recovery. Claims control provisions may require consultation, but they do not normally transfer the cedant’s primary duty to the policyholder.

8. Counterparty Exposure and Risk Management

Reinsurance creates counterparty credit risk: the possibility that a reinsurer will fail to pay when due. Exposure is affected by unpaid recoverables, collateral, future recoveries, reinstatement rights, premium balances and dispute status.

A simplified net exposure measure is:

This measure is useful only if collateral is legally enforceable, correctly valued and available under the governing contract. It should not be treated as a complete economic capital model.

A counterparty framework should consider:

• financial strength and solvency;
• regulatory authorisation;
• ownership and group concentration;
• jurisdiction and enforceability;
• collateral quality and liquidity;
• claims-payment history;
• ratings and rating migration;
• aggregate exposure by reinsurer and group;
• correlations among reinsurers;
• sanctions, anti-money-laundering and reputational concerns.

Concentration limits should be established by legal entity and, where appropriate, by ultimate parent. A portfolio may appear diversified across several brands while remaining concentrated in one insurance group.

Expected credit loss assessment may use probability of default, loss given default and exposure at default as an analytical structure:

This is a simplified risk estimate, not a universal accounting rule. Actual financial reporting must follow the applicable accounting standard, regulatory guidance and contract classification. Assumptions should be documented and updated for credit deterioration, disputes and collateral enforceability.

9. Governance, Regulation and Ethics

Reinsurance governance should begin with a board-approved risk appetite and reinsurance strategy. The strategy should specify desired retention, capacity objectives, counterparty standards, catastrophe protection, liquidity needs and delegated authority.

Key controls include segregation of duties, treaty approval committees, legal review, independent actuarial validation, dual authorisation of payments, access controls, exception reporting, internal audit and periodic stress testing.

Regulatory expectations commonly concern technical provisions, recoverable recognition, collateral, risk transfer, related-party transactions, outsourcing, data protection and reporting. The exact rules vary by jurisdiction, so insurers must apply local legislation and supervisory requirements rather than relying on generic market practice.

Ethical issues include:

• selecting reinsurers for security rather than solely for price;
• avoiding misleading or incomplete risk disclosures;
• ensuring fair treatment of policyholders;
• not using reinsurance to obscure solvency weakness;
• managing conflicts involving brokers or related parties;
• protecting medical and personal data;
• avoiding inappropriate claims delays caused by recovery disputes.

A contract that produces accounting relief without meaningful transfer of insurance risk may create misleading financial statements and regulatory concerns. Substance must prevail over form.

10. Technology, Data and Artificial Intelligence

Modern reinsurance platforms can automate treaty allocation, premium calculation, bordereaux generation, claims matching, exposure accumulation and settlement reconciliation. Application programming interfaces can connect policy administration, claims, actuarial and accounting systems.

Artificial intelligence may assist in anomaly detection, duplicate-claim identification, document classification and prediction of bordereau errors. However, AI should not replace contractual interpretation, professional underwriting judgement or human claims accountability. Important controls include explainability, data-quality testing, bias monitoring, privacy protection, model validation, access controls and human review of adverse decisions.

Data lineage is particularly important. The insurer should be able to trace a recovery from the reinsurer statement to the bordereau, claim file, policy record and original accounting entry. Poor lineage can cause both financial misstatement and inability to defend a claim in a dispute.

11. Illustrative Case: Meridian Life’s Surplus and Catastrophe Programme

Background

Meridian Life, an illustrative mid-sized insurer, sells high-sum-assured term assurance. Its underwriting retention is CU 2 million per life. Individual policies range from CU 500,000 to CU 15 million, and geographic concentration exists in two major cities.

Problem

The insurer’s board observes that large policies consume capital and that a single urban disaster could produce many simultaneous claims. Existing facultative placements are slow, and premium and claim records are reconciled manually.

Analysis

Management evaluates a surplus treaty with a retention line of CU 2 million and capacity of six reinsurer lines. A CU 10 million policy equals five lines, so Meridian retains CU 2 million and cedes CU 8 million. A CU 16 million policy equals eight lines and exceeds treaty capacity; the excess must be retained, declined or placed facultatively.

The insurer also evaluates catastrophe excess-of-loss cover attaching at CU 20 million with a limit of CU 80 million. A defined event produces covered net claims of CU 65 million. The catastrophe recovery is:

Recovery = min(max(CU 65m − CU 20m, 0), CU 80m) = CU 45m.

Meridian retains the first CU 20 million and has CU 15 million of unused catastrophe limit after the event, subject to reinstatement terms.

Approach and solution

The board approves the programme subject to counterparty limits. Legal staff refine the event definition, hours clause, exclusions and claims cooperation wording. Actuaries validate retention levels using mortality scenarios and accumulation data. Operations creates a treaty master record and automated cession rules. Finance establishes monthly premium and claims reconciliations. Claims staff receive escalation rules for potentially recoverable losses.

A reinsurer with weaker financial strength offers a lower price. Meridian rejects the proposal because the counterparty exposure would exceed its approved limit and the apparent saving does not compensate for default risk.

Outcome

The surplus treaty reduces individual-risk concentration, while catastrophe cover limits event accumulation. Automated bordereaux reduce submission errors and improve recovery timeliness. Management still recognises that the programme does not eliminate underwriting, liquidity or counterparty risk.

Learning points

1. Retention should reflect capital, earnings volatility and operational capacity.
2. Treaty capacity must be tested against the largest risks, not average policies.
3. Catastrophe wording is as important as the headline limit.
4. Operational controls determine whether contractual protection becomes a collectible asset.
5. Price must be evaluated together with reinsurer security and concentration.

12. Challenges and Limitations

Reinsurance arrangements may fail to deliver expected protection because of ambiguous wording, excluded causes, inaccurate exposure data, late notification, aggregation disputes, insolvency, currency movements or inadequate treaty administration. Basis risk occurs when the reinsurance trigger does not closely match the insurer’s actual loss. For example, an event-based catastrophe cover may not respond to dispersed losses that are economically severe but do not satisfy the contractual event definition.

Other limitations include model risk in catastrophe estimates, moral hazard, adverse selection, dependence on broker expertise and the possibility that excessive cession weakens underwriting discipline. Reinsurance should therefore complement—not substitute for—sound pricing, reserving, claims management and capital planning.

Best-Practice Checklist

• Match treaty structure to the risk being managed.
• Define retention, limits, exclusions and aggregation provisions precisely.
• Obtain legal, actuarial, underwriting and finance approval before inception.
• Maintain complete policy-to-reinsurance data lineage.
• Submit accurate and timely bordereaux.
• Reconcile premium, claims, cash and ledger balances regularly.
• Monitor recoverables by reinsurer, treaty, currency and age.
• Stress-test catastrophe and counterparty scenarios.
• Review collateral enforceability and concentration limits.
• Escalate disputes and overdue recoveries promptly.
• Preserve policyholder service irrespective of recovery timing.
• Review treaties annually against portfolio change, regulation and experience.

Chapter Summary

Reinsurance enables life insurers to transfer defined portions of mortality, morbidity, accumulation and financial risk while expanding capacity and protecting capital. Treaty reinsurance provides automatic portfolio protection, whereas facultative reinsurance is negotiated for individual or unusual risks. Quota share divides every covered risk in a fixed percentage; surplus reinsurance retains a monetary line and cedes amounts above it. Excess-of-loss protection responds above an attachment point, while catastrophe cover addresses accumulations arising from a defined event or series of events.

Successful reinsurance depends on more than contract placement. Cessions must be calculated accurately, premiums and commissions recorded correctly, bordereaux submitted on time, and claims recoveries tracked through disciplined reconciliations. Counterparty exposure, collateral, concentration and credit deterioration require continuous monitoring. Governance must ensure that reinsurance transfers genuine risk, supports policyholder interests and complies with law and accounting requirements. Technology can improve processing and data quality, but human judgement, contractual expertise and independent controls remain essential.

Key Terms

Bordereau: Periodic schedule reporting risks, premiums, claims or other treaty activity.

Catastrophe reinsurance: Protection against accumulated losses from a defined event or event series.

Cedant: Insurer that transfers risk to a reinsurer.

Cession: Portion of an original risk transferred to a reinsurer.

Claims cooperation clause: Provision requiring consultation between cedant and reinsurer on significant claims.

Excess-of-loss: Non-proportional cover responding above a specified retention up to a limit.

Facultative reinsurance: Individually negotiated reinsurance for a particular risk.

Follow-the-fortunes: Principle requiring a reinsurer to respect qualifying good-faith settlement decisions of the cedant.

Line: Monetary retention unit used in surplus reinsurance.

Limit: Maximum amount payable under a reinsurance layer.

Quota share: Proportional treaty under which a fixed percentage of each covered risk is ceded.

Reinstatement: Restoration of exhausted or reduced cover, usually for additional premium.

Reinsurance premium: Consideration paid for reinsurance protection.

Reinsurer: Entity accepting transferred insurance risk.

Retention: Portion of risk kept by the cedant, or the attachment point of a non-proportional layer.

Retrocession: Reinsurance purchased by a reinsurer.

Surplus treaty: Proportional treaty in which the cedant retains a fixed monetary line and cedes excess amounts.

Treaty reinsurance: Standing agreement automatically covering risks within an agreed class and scope.

Review Questions

Short Answer Questions

1. What is the principal difference between treaty and facultative reinsurance?
2. Define retention and cession in life reinsurance.
3. How does quota-share reinsurance allocate premiums and claims?
4. What is the purpose of a bordereau?
5. Identify two sources of counterparty exposure.

Long Answer Questions

1. Explain the structure, advantages and limitations of surplus reinsurance.
2. Compare proportional and non-proportional reinsurance with suitable examples.
3. Discuss the operational lifecycle of a reinsurance claim recovery.
4. Explain the governance controls required for a life insurer’s reinsurance programme.
5. Evaluate the role of catastrophe reinsurance in managing mortality accumulation risk.

Analytical / Application Questions

1. A policy has a sum assured of CU 900,000 under a surplus treaty with a CU 100,000 retention line and eight-line capacity. Determine the portion that can be ceded under the treaty and identify any amount requiring alternative treatment.
2. An excess-of-loss layer attaches at CU 3 million and has a CU 5 million limit. Calculate the recovery for a covered net loss of CU 6.5 million and explain the cedant’s retained amount.
3. An insurer has gross recoverables of CU 40 million, eligible collateral of CU 12 million and CU 5 million of legally enforceable payables available for set-off. Calculate simplified net counterparty exposure and discuss two limitations of the calculation.

Multiple Choice Questions with Answers

Question 1

Which characteristic best describes treaty reinsurance?

A. Each risk must be individually negotiated before acceptance

B. Qualifying risks are automatically covered under agreed terms

C. Only catastrophe losses can be transferred

D. The policyholder contracts directly with the reinsurer

Correct Answer: B. Qualifying risks are automatically covered under agreed terms

Question 2

Under a 40% quota-share treaty, a covered claim of CU 500,000 produces what reinsurer claim share?

A. CU 100,000

B. CU 200,000

C. CU 300,000

D. CU 400,000

Correct Answer: B. CU 200,000

Question 3

In surplus reinsurance, the cedant’s retention is normally expressed as:

A. A fixed monetary line

B. A percentage of every claim only

C. The reinsurer’s annual profit

D. The catastrophe event duration

Correct Answer: A. A fixed monetary line

Question 4

An excess-of-loss layer has a retention of CU 1 million and a limit of CU 2 million. What is the recovery for a covered loss of CU 2.4 million?

A. CU 400,000

B. CU 1 million

C. CU 1.4 million

D. CU 2.4 million

Correct Answer: C. CU 1.4 million

Question 5

What is the primary purpose of a claims bordereau?

A. To advertise new insurance products

B. To report claims activity to the reinsurer

C. To replace the original policy contract

D. To determine the insurer’s share price

Correct Answer: B. To report claims activity to the reinsurer

Question 6

Which item is most directly associated with counterparty credit risk?

A. Unpaid reinsurance recoverables

B. Policyholder occupation only

C. The insurer’s office rent

D. The colour of the policy document

Correct Answer: A. Unpaid reinsurance recoverables

Question 7

A catastrophe treaty primarily protects against:

A. A fixed percentage of every policy premium

B. Accumulated losses from a defined event

C. Only administrative expenses

D. All investment-market losses automatically

Correct Answer: B. Accumulated losses from a defined event

Question 8

If gross recoverables are CU 40 million, collateral is CU 12 million and enforceable set-off is CU 5 million, simplified net exposure is:

A. CU 17 million

B. CU 23 million

C. CU 28 million

D. CU 57 million

Correct Answer: B. CU 23 million

Question 9

Why is data lineage important in reinsurance operations?

A. It eliminates the need for contracts

B. It traces recoveries to policy, claim and accounting records

C. It guarantees that no reinsurer can default

D. It converts all treaties into quota share

Correct Answer: B. It traces recoveries to policy, claim and accounting records

Question 10

Which statement about reinsurance and policyholder claims is correct?

A. The cedant is generally relieved of all policyholder obligations

B. The reinsurer always pays the policyholder directly

C. The cedant remains primarily responsible to the policyholder

D. Claims can be delayed until the reinsurer pays

Correct Answer: C. The cedant remains primarily responsible to the policyholder