New Jersey Life Producer Practice Exam

What must a reinsurer ensure when obtaining insurance for itself from another reinsurer?

1. Compliance with underwriting guidelines

2. Financial stability of the primary insurer

3. Retention of claims data

4. Accuracy in policy wording

The correct answer is: Financial stability of the primary insurer

The correct choice highlights the importance of financial stability for the primary insurer when a reinsurer seeks coverage from another reinsurer. This is crucial because the reinsurer will be assuming risk that could result in significant financial exposure if the primary insurer fails to meet its obligations or faces insolvency. Evaluating the financial stability of the primary insurer allows the reinsurer to assess the potential risk involved and ensures that they are not taking on excessive or unforeseen liabilities. While other options relate to different aspects of the reinsurance process—such as adherence to underwriting guidelines, claims data retention, and accuracy in policy details—these factors are secondary to understanding the primary insurer's financial health. Without the primary insurer's financial stability, the entire reinsurance arrangement could be jeopardized, making it vital for the reinsurer to ensure this element is satisfactory.