Under excess reinsurance, when do recoveries become available?

Under excess reinsurance, when do recoveries become available?

• A. When the loss is below the ceding insurer's retention
• B. When the loss exceeds the agreed retention
• C. Automatically with policy activation
• D. Only for losses that are less than $1 million

Answer: (B)

Recoveries under excess reinsurance become available when the loss exceeds the agreed retention of the ceding insurer. This means that the insurer retains a certain amount of risk, known as the retention limit, and only once losses surpass this limit can the insurer recover amounts from the reinsurer. In the context of excess reinsurance, the arrangement is designed to protect the insurer from extreme losses while allowing them to manage smaller claims independently. Therefore, the fundamental principle of excess reinsurance hinges on the concept that the reinsurer steps in to cover losses that go beyond a pre-determined threshold, ensuring that the ceding insurer is safeguarded against significant financial burdens. Understanding this concept is crucial for anyone involved in insurance, as it reflects the comprehensive risk management strategies that companies utilize to stabilize their operations while facilitating coverage to policyholders.

Recoveries under excess reinsurance become available when the loss exceeds the agreed retention of the ceding insurer. This means that the insurer retains a certain amount of risk, known as the retention limit, and only once losses surpass this limit can the insurer recover amounts from the reinsurer.

In the context of excess reinsurance, the arrangement is designed to protect the insurer from extreme losses while allowing them to manage smaller claims independently. Therefore, the fundamental principle of excess reinsurance hinges on the concept that the reinsurer steps in to cover losses that go beyond a pre-determined threshold, ensuring that the ceding insurer is safeguarded against significant financial burdens.

Understanding this concept is crucial for anyone involved in insurance, as it reflects the comprehensive risk management strategies that companies utilize to stabilize their operations while facilitating coverage to policyholders.