Insurance Broker Certification Practice Exam

Which term describes a predetermined, blanket agreement in reinsurance?

1. Facultative reinsurance

2. Automatic reinsurance

3. Express authority

4. Implied authority

The correct answer is: Automatic reinsurance

The term that describes a predetermined, blanket agreement in reinsurance is automatic reinsurance. In this context, automatic reinsurance refers to a type of reinsurance arrangement where the reinsurer agrees in advance to accept certain types of risks from the ceding insurer without the need for each individual risk to be separately negotiated or approved. This facilitates a more streamlined process for the insurer, enabling them to manage their portfolio of risks efficiently and effectively. In automatic reinsurance agreements, the terms and conditions are established beforehand, allowing for automatic participation in the program. This differs from facultative reinsurance, where each risk is evaluated individually and must be negotiated separately. The efficiency of automatic reinsurance makes it a favored option for insurers looking to manage large volumes of similar risks under consistent terms. Express authority and implied authority relate to the powers granted to agents or brokers in the insurance sector, rather than to the mechanisms of reinsurance itself, which clarifies their absence from the correct definition in this case.