Every answer and its explanation appears here once you have finished the path. Each one then links to the matching glossary entry, where the concept is set out in full with its worked example.
1. Under a 30% quota share treaty, how are premiums and losses split?
The reinsurer takes 30% of premiums and 30% of every loss
Quota share is proportional: the same fraction applies to premiums and to every loss, small or large. It transfers volume, not peak volatility, and that is exactly what separates it from excess of loss.
Glossary entry →2. A layer is described as "10m xs 5m". What does the reinsurer pay on a 12m loss?
7m
The attachment is 5 and the limit is 10, so the layer runs from 5 to 15. A loss of 12 pierces it by 12 less 5, that is 7. The cedant keeps its first 5m, and nothing touches the layer above until 15 is reached.
Glossary entry →3. What purpose does a reinstatement clause serve in an excess of loss treaty?
To make the layer available again after a loss has consumed it
Without reinstatement, a layer consumed in February protects nothing until December. Reinstatement puts it back, usually for an additional premium proportional to the amount consumed and the time remaining.
Glossary entry →4. What does the rate on line of a reinsurance layer measure?
The ratio of the layer's premium to its limit
A rate on line of 10% means paying one tenth of the limit each year. Its inverse, the payback period, says in how many premium years the reinsurer recovers a full loss: 10% means ten years, which immediately reveals the return period implicitly assumed.
Glossary entry →5. When is facultative reinsurance used rather than a treaty?
When one individual risk falls outside the treaty by size or nature
A treaty covers a class defined in advance. Facultative is negotiated risk by risk, which costs more in handling but allows writing business the treaty would have refused or exhausted.
Glossary entry →6. What distinguishes a catastrophe bond from a classic reinsurance treaty?
The capital comes from investors and is held as collateral
The protection is no longer backed by a reinsurer's balance sheet but by posted collateral, which removes counterparty risk. In exchange, the investor receives a coupon and loses all or part of the principal if the trigger is hit.
Glossary entry →7. A parametric cover triggers on seismic magnitude measured at a given station. What risk does the insured retain?
Basis risk, the gap between the payout and the actual loss
Parametric pays quickly because it does not measure damage, it measures an index. An earthquake can destroy the plant without reaching the threshold at the chosen station, or reach it without breaking anything. That gap is the price of speed, and better index design narrows it, never to zero.
Glossary entry →8. What does a cedant's retention express?
The share of risk it keeps for its own account
Retention is a program's central decision: too low and you pay dearly to transfer volatility you could absorb; too high and one event bites into own funds. It is reasoned against capacity to absorb, not against comfort.
Glossary entry →