Question

“In countries where minimum solvency margins based on net premiums are applied, reinsurance can reduce net premiums.” What does this statement imply?

a.

An insurer can accept an increasing volume of business without requiring a corresponding increase in capital.

b.

An insurer cannot accept an increasing volume of business before requiring a corresponding increase in capital.

c.

An insurer can accept an increasing volume of business after requiring a corresponding increase in capital.

d.

An insurer cannot accept an increasing volume of business after requiring a corresponding increase in capital.

Posted under IC85 Reinsurance Management

Answer: (a).An insurer can accept an increasing volume of business without requiring a corresponding increase in capital. Explanation:Solvency margins are regulatory requirements that specify the amount of capital an insurer must hold in order to conduct business. In some countries, these solvency margins are based on net premiums, which is the amount of premiums an insurer receives after deducting reinsurance premiums. Therefore, if an insurer purchases reinsurance, the amount of net premiums is reduced, which in turn reduces the amount of capital required to meet the solvency margin. This allows the insurer to accept more business without needing to increase its capital.

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Q. “In countries where minimum solvency margins based on net premiums are applied, reinsurance can reduce net premiums.” What does this statement imply?
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