Question

How does contingent capital function in risk financing?

a.

It acts as a loan agreement with a bank for raising capital

b.

It guarantees the right to raise equity or loan capital after an insurance event

c.

It provides insurance coverage against rare but severe loss events

d.

It complies with solvency margins for direct insurers

Posted under IC85 Reinsurance Management

Answer: (b).It guarantees the right to raise equity or loan capital after an insurance event Explanation:Contingent capital in its simplest form is similar to a loan agreement with a bank, but with the condition that the policyholder has the right to raise equity or loan capital at agreed terms if a contractually defined insurance event occurs. This ensures that capital can be raised after the event to sustain business operations.

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Q. How does contingent capital function in risk financing?
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