Which of the following is an exception to the significant loss criteria?

Prepare for the CAS Exam 6 with detailed study materials. Use flashcards and multiple-choice questions, each with hints and explanations, to get exam-ready!

Multiple Choice

Which of the following is an exception to the significant loss criteria?

The key idea here is whether a reinsurance contract actually transfers meaningful insurance risk to the reinsurer. An exception to the significant loss criteria arises when the reinsurer has assumed substantially all of the insurance risk on the reinsured portion. When almost all of the risk is borne by the reinsurer, the usual tests for significant risk transfer don’t apply in the typical way because the ceding company is left with little to no risk of loss. The other factors—reinsurer credit rating, contract duration, or a guaranteed minimum profit—do not by themselves create that near-total transfer of risk, so they don’t constitute the same kind of exception.

The key idea here is whether a reinsurance contract actually transfers meaningful insurance risk to the reinsurer. An exception to the significant loss criteria arises when the reinsurer has assumed substantially all of the insurance risk on the reinsured portion. When almost all of the risk is borne by the reinsurer, the usual tests for significant risk transfer don’t apply in the typical way because the ceding company is left with little to no risk of loss. The other factors—reinsurer credit rating, contract duration, or a guaranteed minimum profit—do not by themselves create that near-total transfer of risk, so they don’t constitute the same kind of exception.

More practice questions