A primary insurer has a higher frequency of loss among its policyholders or claimants than a reinsurer has among its ceding companies.

Question

Options

• ATrue
• BFalse

• A
  71% (22)
• B
  29% (9)

Explanation

Option A is correct because primary insurers deal directly with large numbers of individual policyholders, each of whom can experience a loss at any time (car accidents, property damage, illness, etc.), resulting in a high frequency of loss events. Reinsurers, by contrast, deal with a much smaller number of ceding companies (other insurers), and their "loss events" only occur when those companies' own losses reach thresholds significant enough to trigger reinsurance coverage - making such events comparatively rare.

Option B is incorrect because it contradicts this fundamental structural difference: the sheer volume of individual policyholders at the primary level guarantees a higher frequency of claims than exists at the reinsurance level, where the client base is smaller and loss triggers are higher.

Memory tip: Think in layers - primary insurers sit at the base of the risk pyramid with millions of policyholders generating constant, everyday losses; reinsurers sit above them with a handful of ceding-company clients and only activate on large or unusual loss events. More clients + lower thresholds = higher frequency.

No community discussion yet for this question.