What says that companies not authorized or licensed to do business in the domiciliary state of the ceding company?

Question

Options

• Areinsurers' treaties
• Bunauthorized reinsurers
• Cunauthorized funds
• Dunrecognized dividends

• A
  13% (2)
• B
  81% (13)
• C
  6% (1)

Explanation

Unauthorized reinsurers (B) is the term that specifically defines reinsurance companies that are not authorized or licensed to conduct business in the domiciliary state of the ceding company (the insurer transferring risk). Because they lack this licensure, ceding companies face additional regulatory requirements - such as posting collateral - to receive credit for reinsurance on their financial statements.

• A (reinsurers' treaties) is wrong - a treaty is a type of reinsurance agreement, not a classification of a company's licensing status.
• C (unauthorized funds) is a fabricated term; "funds" doesn't describe a category of reinsurance entity.
• D (unrecognized dividends) is entirely unrelated - dividends are distributions of profit, not a classification of reinsurers.

Memory tip: Think "unauthorized = unlicensed." Just as an unauthorized driver lacks a license to operate in a state, an unauthorized reinsurer lacks the license to operate in the ceding company's home (domiciliary) state. The word "unauthorized" appears in both the term and the definition - a direct giveaway on exam day.

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