Alternatives to Traditional Reinsurance MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on Alternatives to Traditional Reinsurance, a fundamental topic in the field of IC85 Reinsurance Management. Whether you're preparing for competitive exams, honing your problem-solving skills, or simply looking to enhance your abilities in this field, our Alternatives to Traditional Reinsurance MCQs are designed to help you grasp the core concepts and excel in solving problems.

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Alternatives to Traditional Reinsurance MCQs | Page 10 of 12

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Q91.
What is the purpose of the alternative risk transfer products offered by Munich Reinsurance Co.?

a.

To provide refinancing opportunities for insurers

b.

To offer investment opportunities to policyholders

c.

To facilitate joint ventures with investment banks

d.

To provide alternative risk techniques for large-scale projects

Discuss
Answer: (a).To provide refinancing opportunities for insurers Explanation:Munich Reinsurance Co. offers alternative risk transfer products to provide refinancing opportunities for HVB Group.
Q92.
What role do brokers play in the New Market?

a.

Modeling coverage options for clients

b.

Providing consulting services to clients

c.

Comparing solutions from different specialists

d.

All of the above

Discuss
Answer: (d).All of the above Explanation:Brokers in the New Market are expected to assist clients by modeling coverage options, providing consulting services, and offering total reinsurance solutions. They are responsible for helping clients reduce income statement volatility, enhance balance sheet safety, and address a full range of risk management scenarios. Brokers are expected to develop expertise in understanding and quantifying risks, assessing financing alternatives, and obtaining the best prices and terms.
Q93.
What do clients expect from brokers in the New Market?

a.

Assistance in managing risk efficiently and effectively

b.

Specialized risk transfer mechanisms

c.

Collaboration with multiple specialists for different solutions

d.

Both a and b

Discuss
Answer: (d).Both a and b Explanation:Clients in the New Market expect brokers to assist them in managing risk efficiently and effectively. They want brokers to offer specialized risk transfer mechanisms and provide comprehensive solutions that involve securitization as well as traditional and nontraditional reinsurance. Clients prefer a single broker who can address their various risk management needs instead of having to consult multiple specialists.
Q94.
What is the expectation regarding comparing solutions from different specialists?

a.

Clients prefer solutions from a single specialist

b.

Brokers are responsible for comparing different solutions

c.

Clients want multiple options for risk management scenarios

d.

Comparing solutions is not a significant aspect in the New Market

Discuss
Answer: (a).Clients prefer solutions from a single specialist Explanation:In the New Market, clients prefer not to have to compare solutions from different specialists. They want brokers to provide them with comprehensive solutions and consulting services, eliminating the need to go to multiple specialists for different types of solutions.
Q95.
What is the ultimate goal for brokers in the New Market?

a.

Maximizing the profits of insurance companies

b.

Minimizing the risks faced by clients

c.

Facilitating capital market investments

d.

Expanding the range of insurance products

Discuss
Answer: (b).Minimizing the risks faced by clients Explanation:The ultimate goal for brokers in the New Market is to help clients reduce the volatility of their income statement and add to the safety of their balance sheet by effectively managing and minimizing risks. Their role is to provide clients with the necessary expertise, consulting services, and risk transfer mechanisms to address a full range of risk management scenarios.
Q96.
According to a Swiss Re study, how much of the world's commercial non-life premium is retained each year in large corporation captive insurance and self-insurance?

a.

10%

b.

25%

c.

50%

d.

75%

Discuss
Answer: (b).25% Explanation:The Swiss Re study estimates that approximately 25% of the world's commercial non-life premium is retained each year in large corporation captive insurance and self-insurance.
Q97.
What is the impact of captives on the position of the insurer in relation to the parent group?

a.

The insurer becomes the reinsurer to the parent group.

b.

The insurer remains separate from the parent group.

c.

The insurer provides coverage exclusively to captives.

d.

The insurer loses its reinsurance capacity.

Discuss
Answer: (a).The insurer becomes the reinsurer to the parent group. Explanation:Captives have caused a shift in the position of the insurer, making it the reinsurer to the parent group. This means that the captive insurance entities within the parent group require reinsurance, and the insurer provides this reinsurance coverage.
Q98.
What is the significance of high self retentions in the reinsurance market?

a.

They increase the demand for reinsurance coverage.

b.

They lead to the withdrawal of premium from the property market.

c.

They reduce the need for captives in the insurance industry.

d.

They shift the focus to alternative markets for capacity.

Discuss
Answer: (b).They lead to the withdrawal of premium from the property market. Explanation:High self retentions, which involve captives assuming a significant portion of the risk themselves, have led to the withdrawal of considerable premium from the world property market. Captives with professional managers have sought the best coverages at optimal prices, resulting in reduced reliance on traditional reinsurance and a shift in the market dynamics.
Q99.
What decision did British Petroleum make regarding insurance coverage?

a.

They opted for captives instead of traditional insurance.

b.

They increased their premium payments to US $125 million.

c.

They withdrew from the world energy market.

d.

They limited their insurance coverage to US $10 million for legal compliance.

Discuss
Answer: (d).They limited their insurance coverage to US $10 million for legal compliance. Explanation:British Petroleum decided to limit their insurance coverage to a maximum of US $10 million, fulfilling only their legal compliance requirements. This significantly reduced the premium amount paid by British Petroleum and impacted the world energy market by withdrawing a large premium amount.
Q100.
What decision did British Petroleum make regarding insurance coverage?What is the main reason for increase in demand for ART products?

a.

They opted for captives instead of traditional insurance.Higher reinsurance prices driven primarily by a shortage of capacity in the retrocession market

b.

They increased their premium payments to US $125 million.Increased fluctuations in the financial market

c.

They withdrew from the world energy market.Exploitation of tax and regulatory asymmetries

d.

They limited their insurance coverage to US $10 million for legal compliance.For providing multi year covers to securitization of risk and derivatives

Discuss
Answer: (b).They limited their insurance coverage to US $10 million for legal compliance.Higher reinsurance prices driven primarily by a shortage of capacity in the retrocession market Explanation:British Petroleum decided to limit their insurance coverage to a maximum of US $10 million, fulfilling only their legal compliance requirements. This significantly reduced the premium amount paid by British Petroleum and impacted the world energy market by withdrawing a large premium amount.The main reason for the increase in demand for Alternative Risk Transfer (ART) products is higher reinsurance prices driven primarily by a shortage of capacity in the retrocession market. As reinsurance prices increase due to limited capacity, there is a growing demand for ART products as an alternative risk management solution. These products offer refinancing opportunities and provide coverage through bond offerings, offering a viable option in the face of rising reinsurance rates.
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