State RegulationsFL specificDifficulty 2/5
A Florida life insurer has issued large policies and wants to reduce its exposure to the mortality risk on those lives, so it transfers part of that risk to another insurer under a reinsurance agreement. Which term identifies the original insurer?
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
Under the Florida Insurance Code, the insurer that transfers part of its assumed risk to a reinsurer is the ceding company, and the party assuming that risk is the reinsurer. Reinsurance lets the ceding company stabilize its exposure without reducing the coverage promised to its policyholders.
Why the other options are wrong
- A) The beneficiary under the life policies receives death proceeds; the ceding company is the insurer transferring risk.
- C) The reinsurer is the party assuming the ceded risk, the opposite role from the original insurer.
- D) The policyowner is the consumer who owns the original contract, not the insurer ceding risk.
Memory hook
Ceding company cedes; reinsurer receives the risk.