In portfolio reinsurance, what does 'surplus relief' refer to?

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Multiple Choice

In portfolio reinsurance, what does 'surplus relief' refer to?

Surplus relief is the boost to an insurer’s available surplus that comes from premium relief offered by the reinsurer in a portfolio reinsurance arrangement. The reinsurer takes on part of the risk and, in return, lowers the net premium the ceding insurer pays. That premium discount reduces the cost of the ceded business and, because capital is tied to the size and cost of that business, the insurer can hold less required surplus for that block. The result is an increased apparent surplus or financial flexibility for the insurer. So the premium discount that increases the insurer’s surplus best captures surplus relief.

Surplus relief is the boost to an insurer’s available surplus that comes from premium relief offered by the reinsurer in a portfolio reinsurance arrangement. The reinsurer takes on part of the risk and, in return, lowers the net premium the ceding insurer pays. That premium discount reduces the cost of the ceded business and, because capital is tied to the size and cost of that business, the insurer can hold less required surplus for that block. The result is an increased apparent surplus or financial flexibility for the insurer.

So the premium discount that increases the insurer’s surplus best captures surplus relief.

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