General Insurance PrinciplesQuestion 193 of 474
A primary insurer must cede, and the reinsurer must accept, every risk falling in a defined class. This arrangement is:
a.a pooling agreement among competing primary insurers
b.facultative reinsurance, negotiated one risk at a time
c.an assumption of the policy by a second retail insurer
d.treaty reinsurance, arranged in advance for a class of risks
Explanation
Treaty reinsurance is automatic: the agreement is struck in advance, the ceding company must cede and the reinsurer must accept everything in the described class, with no case-by-case review. Facultative reinsurance is the opposite, offered and accepted risk by risk, which the insurer typically uses for an unusual or very large exposure that the treaty will not take.
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