CAS Practice Exam 2025 – Complete Study Guide

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What types of losses does finite risk reinsurance aim to cover?

Only traditional insurable loss exposures

Only traditionally uninsurable loss exposures

All types of high-severity losses, both insurable and uninsurable

Finite risk reinsurance is designed to address a broad range of potential losses that can affect an insurance company's financial stability. This includes high-severity losses that traditional insurance may not adequately cover or for which coverage is often limited.

The characteristic feature of finite risk reinsurance is its focus on high-severity, low-frequency events, allowing insurers to manage their exposure to catastrophic losses. This type of reinsurance provides coverage for both traditionally insurable loss exposures, like natural disasters or large liability claims, and traditionally uninsurable events, such as certain forms of economic or political risk.

By encompassing all types of high-severity losses, finite risk reinsurance offers insurers a way to stabilize their financial results and protect their capital, effectively addressing both insurable and uninsurable risks.

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Only minor losses resulting from operational hazards

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