Primary losses are losses that are less than or equal to the state's split point and are commonly referred to as what?

• A. Loss frequency
• B. Loss severity
• C. Catastrophic losses
• D. Total losses

Answer: (A)

In a reinsurance setup, the split point determines what the primary insurer keeps and what the reinsurer covers. Losses that are at or below this split point are the smaller, more frequent claims retained by the primary layer. Because these losses are driven by how often claims occur rather than how large each claim is, they’re described as loss frequency. Loss severity would refer to the size of individual claims, catastrophic losses to very large claims, and total losses to the overall sum. So the best fit for primary losses is loss frequency.