Question

What is the purpose of a commutation clause in reinsurance?

a.

Estimating future obligations between the reinsured and reinsurer

b.

Providing coverage in case of insolvency

c.

Discharging all obligations between the reinsured and reinsurer

d.

Adjusting the premium based on the completion of the contract period

Posted under IC85 Reinsurance Management

Answer: (c).Discharging all obligations between the reinsured and reinsurer Explanation:A commutation clause in reinsurance provides for the complete discharge of all obligations, including future obligations, between the reinsured and reinsurer through an estimated settlement of all incurred and outstanding losses.

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Q. What is the purpose of a commutation clause in reinsurance?
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