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Insurance Institute C11 Exam - Topic 3 Question 3 Discussion

[Insurance Companies / Reinsurance]An insurer writes a $60,000,000 risk for a premium of $30,000. Using pro rata reinsurance, it transfers 25% of the risk to the reinsurer. The risk then suffers a $100,000 loss. How much does the reinsurer contribute to this loss?
A) $25,000
B) $60,000
C) $75,000
D) $100,000

Insurance Institute C11 Exam - Topic 3 Question 3 Discussion

Actual exam question for Insurance Institute's C11 exam
Question #: 3
Topic #: 3
[All C11 Questions]

[Insurance Companies / Reinsurance]

An insurer writes a $60,000,000 risk for a premium of $30,000. Using pro rata reinsurance, it transfers 25% of the risk to the reinsurer. The risk then suffers a $100,000 loss. How much does the reinsurer contribute to this loss?

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Suggested Answer: A

In pro rata (proportional) reinsurance, the reinsurer assumes a fixed percentage of both the risk and the premium, and in return pays the same percentage of any losses. Here, the insurer cedes 25% of the risk to the reinsurer. Therefore, the reinsurer must contribute 25% of any loss that occurs on that policy.

The loss amount is $100,000.

Reinsurer's share = 25% $100,000 = $25,000.

The insurer retains the remaining 75%, or $75,000. Proportional reinsurance helps insurers manage exposure by sharing both costs and losses. Options B, C, and D do not correctly reflect proportional-sharing principles. The reinsurer does not pay the full loss; it only pays its agreed percentage.

Thus, the correct answer is A: $25,000.


by Ludivina at Aug 09, 2026, 06:57 AM

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Abel
6 hours ago
The reinsurer takes on 25% of the risk.
upvoted 0 times
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Devora
5 days ago
I feel like I should double-check the loss amount and the percentage. I hope it's just a simple multiplication, but I can't recall the exact steps.
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Mertie
11 days ago
Wait, if the loss is $100,000 and the reinsurer takes 25%, does that mean they pay $25,000? But what if I miscalculated the percentage?
upvoted 0 times
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Amalia
16 days ago
I remember a similar question where we had to find the reinsurer's share of a loss. I think it was just a straightforward percentage calculation.
upvoted 0 times
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Jame
21 days ago
I think the reinsurer would cover 25% of the loss, but I'm not sure how to calculate that exactly.
upvoted 0 times
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