When premium income less return premiums arising from policies issued or other contracts entered into reinsure other insurance entities that provide the related primary coverage are called:

Question

Options

• AIndirect premiums
• BDirect premiums
• CAssumed reinsurance premiums
• DReal reinsurance premiums

• A
  9% (3)
• B
  3% (1)
• C
  84% (27)
• D
  3% (1)

Explanation

Assumed reinsurance premiums (C) are the correct term because they represent premiums earned when a reinsurer assumes risk from primary insurers - i.e., the reinsurer steps in to cover what the primary insurer has already underwritten. The definition in the question ("contracts entered into to reinsure other insurance entities that provide the related primary coverage") precisely describes this assumed relationship.

Why the distractors are wrong:

• A. Indirect premiums - not a recognized category in reinsurance accounting; this term doesn't describe the reinsurer/cedant relationship.
• B. Direct premiums - the opposite concept: premiums written directly between an insurer and a policyholder, with no reinsurance intermediary.
• D. Real reinsurance premiums - not a standard industry term; it's a distractor designed to sound plausible.

Memory tip: Think of "assumed" as the reinsurer assuming responsibility - the primary insurer cedes (gives away) the risk, and the reinsurer assumes (takes on) that risk. Premiums flowing to the reinsurer for taking on that assumed risk = assumed reinsurance premiums. The counterpart is "ceded premiums" on the primary insurer's books - two sides of the same transaction.

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