Question

If management sets high retention limit , then ____________

a.

They may find they are ceding too large a part of their premium income to their reinsurers.

b.

They may find they are ceding too small a part of their premium income to their reinsurers.

c.

They expose themselves to retaining more when claims occur.

d.

They expose themselves to retaining less when claims occur.

Posted under IC85 Reinsurance Management

Answer: (c).They expose themselves to retaining more when claims occur. Explanation:When management sets a high retention limit, it means that they have decided to retain a larger portion of the risk on their own instead of passing it on to reinsurers. This can result in the insurer being exposed to retaining more when claims occur, as they will be responsible for a greater portion of the losses. This decision can be beneficial if the insurer has confidence in their ability to manage and price the risk effectively, but it also exposes them to potentially larger losses if their assumptions are incorrect. Option a is incorrect because if management sets a high retention limit, they are ceding a smaller portion of their premium income to their reinsurers, not a larger portion. Option b is also incorrect for the same reason. Option d is incorrect because a high retention limit means that the insurer is retaining more risk, not less.

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Q. If management sets high retention limit , then ____________
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