Question

Which of the following statements are correct with respect to technical objectives?

a.

The technical results of the insurer need to be destabilised by reducing fluctuations in claims to the yearly retained account

b.

The risk of suffering a greater liability than permitted by the financial resources in the event of a catastrophe must be maximised

c.

Concentration of risks in any one class of business or geographical area must be reduced

d.

To allow a company to accept risks beyond its normal retention and so ensure that it is placed at a serious disadvantage compared to its competitors

Posted under IC85 Reinsurance Management

Answer: (c).Concentration of risks in any one class of business or geographical area must be reduced Explanation:Technical objectives of reinsurance include stabilizing any fluctuation in the company's annual aggregate claims experience so that wide fluctuations in results from one year to the next are avoided, safeguarding the solvency of an insurer against random fluctuations in the overall claims experience and an accumulation of losses arising out of one event, and reducing concentration of risks in any one class of business or geographical area. Option a is incorrect as the technical results of the insurer need to be stabilized and not destabilized. Option b is incorrect as the objective of reinsurance is to minimize the risk of suffering a greater liability than permitted by the financial resources in the event of a catastrophe. Option d is incorrect as the objective of reinsurance is to allow a company to accept risks beyond its normal retention and so ensure that it is not placed at a serious disadvantage compared to its competitors.

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Q. Which of the following statements are correct with respect to technical objectives?
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