Question

Which statement regarding surplus share reinsurance is correct? Surplus share reinsurance is a form of non-proportional reinsurance. In order for a policy to be reinsured under a surplus share agreement, the policy's limits must exceed the insurer's retention. Surplus share reinsurance is a form of treaty reinsurance and is not a form of facultative reinsurance. None of the above statements are correct.

Answer 1

Correct answer :- option C:- surplus share reinsurance is a treaty reinsurance not a facultative reinsurance.

First understand what is surplus share reinsurance:- A surplus share treaty is a reinsurance treaty in which the ceding insurer retains a fixed amount of policy liability and the reinsurer takes responsibility for what remains. Surplus share treaties are considered pro-rata treaties and are most commonly used with property insurance.

Option C is correct :- Facultative reinsurance and reinsurance treaties are two types of reinsurance contracts. When it comes to facultative reinsurance, the main insurer covers one risk or a series of risks held in its own books. Treaty reinsurance, on the other hand, is insurance purchased by an insurer from another company. With facultative reinsurance, the reinsurer can review the risks involved in an insurance policy and either accept or reject them. But the reinsurer in a treaty reinsurance policy, on the other hand, generally accepts all the risks involved with certain policies.

Option A is incorrect :- Surplus Share - A form of proportional reinsurance where the reinsurer assumes pro rata responsibility for only that portion of any risk which exceeds the company’s established retentions.

Option B it is also incorrect . This kind of situation doesn't fall in category of surplus share reinsurance.