Question

All the following statements regarding reinsurance are correct EXCEPT:

A. The insurer accepting some of the risk being transferred from another insurer is known as the reinsuring company.

B. The insurer seeking to transfer some of its risk to another insurer is known as the ceding company.

C. Reinsurance is a risk-sharing process used by insurance companies.

D. Claims are paid to the policyowner separately by each insurer participating in the reinsurance agreement

Answer 1

D. Claims are paid to the policyowner separately by each insurer participating in the reinsurance agreement.

Step-by-step explanation:

Option D is correct because it does not apply to reinsurance.

In reinsurance, the company known as the insurer accepting part of the risk that are being transferred from another insurer is known as the reinsuring company.

Also, the insurer that is seeking to transfer part of its risk to another insurer is called the ceding company. Reinsurance is a risk sharing process between the insuring companies. Insurer that transfers part of his risk to another insurer does that in order to limit their total loss which they might incur in the case of any disaster.