State RegulationsFL specificDifficulty 1/5
An insurance company in Florida arranges for another insurance company to assume part of the risk on policies it has issued. In Florida insurance terminology, this arrangement between the two insurers is called:
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Answer & full 3-part explanation (select an option above, or peek)
Why C is correct
Under the Florida Insurance Code, reinsurance is insurance bought by an insurer, called the ceding company, from another insurer, the reinsurer, which agrees to indemnify the ceding company for all or part of the risk it has assumed under its own policies. Reinsurance spreads risk among insurers rather than between an insurer and a consumer.
Why the other options are wrong
- A) A joint policy covering multiple insureds is still original insurance, not insurance between insurers.
- B) Duplicate coverage owned by the insured is excess or overlapping insurance, not reinsurance, which runs between insurers.
- D) Directors and officers coverage protects corporate managers; it is not the risk-sharing arrangement between insurers that defines reinsurance.
Memory hook
Reinsurance = insurance for insurers.