Question

What is the purpose of a limit in a reinsurance treaty?

a.

To ensure the ceding insurer cannot accept inferior risk

b.

To ensure the reinsurer cannot accept more risk than agreed upon

c.

To limit the total amount of risk that can be ceded to the reinsurer

d.

To limit the amount of premium the ceding insurer has to pay to the reinsurer

Answer: (c).To limit the total amount of risk that can be ceded to the reinsurer Explanation:A limit in a reinsurance treaty sets a cap on the amount of risk that can be ceded to the reinsurer, protecting them from excessive risk exposure.

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Q. What is the purpose of a limit in a reinsurance treaty?

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