Alberta General Insurance Level 1 Practice Exam

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Which type of reinsurance involves automatic acceptance of liability for a specified class of business?

  1. Treaty Reinsurance

  2. Facultative Reinsurance

  3. Proportional Reinsurance

  4. Non-Proportional Reinsurance

The correct answer is: Treaty Reinsurance

Treaty reinsurance is a type of reinsurance where the reinsurer automatically accepts liability for a specified class of business, as stated in the question. This means that the primary insurer does not need to negotiate with the reinsurer for each individual policy; instead, the terms and conditions are predetermined in a "treaty" agreement. Facultative reinsurance, on the other hand, involves the reinsurer manually selecting and underwriting each individual policy from the primary insurer. This is not an automatic acceptance and requires negotiation for each individual policy. Proportional reinsurance is a type of treaty reinsurance where the reinsurer assumes a proportionate share of the risk in each policy, as stated in the question. Non-proportional reinsurance, also known as excess of loss reinsurance, is a type of treaty reinsurance where the reinsurer only assumes liability once the loss exceeds a

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