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 6 of 12

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Q51.
How does the spread loss reinsurance contract protect the insurer?

a.

It pays back the negative balance in the insurer's business.

b.

It ensures a fixed term for reinsurance coverage.

c.

It eliminates credit risk for the reinsurer.

d.

It provides additional coverage for catastrophic losses.

Discuss
Answer: (a).It pays back the negative balance in the insurer's business. Explanation:The spread loss reinsurance contract is designed to pay back the negative balance in the insurer's business as pre-agreed with the reinsurer, thus protecting the insurer from such losses.
Q52.
Which country precludes the use of spread loss reinsurance?

a.

United States

b.

United Kingdom

c.

Both the US and UK

d.

No country precludes spread loss reinsurance.

Discuss
Answer: (c).Both the US and UK Explanation:In most countries, including the US and UK, spread loss reinsurance is precluded and not allowed.
Q53.
What is the purpose of a loss portfolio transfer in reinsurance?

a.

To discount loss reserves

b.

To supplement loss reserves

c.

To transfer outstanding losses to reinsurers

d.

All of the above

Discuss
Answer: (d).All of the above Explanation:A loss portfolio transfer allows insurers to effectively discount or supplement their loss reserves by transferring outstanding losses to reinsurers, thereby diminishing the loss reserve in the insurer's balance sheet.
Q54.
What percentage of the ceded loss portfolio is typically assumed by reinsurers in a loss portfolio transfer?

a.

50%

b.

75%

c.

90%

d.

100%

Discuss
Answer: (c).90% Explanation:In a loss portfolio transfer, reinsurers typically assume the ceded loss portfolio transfer at 90% or as agreed upon.
Q55.
What is the main effect of a loss portfolio transfer on the insurer's balance sheet?

a.

Reduction of loss reserves

b.

Increase in loss reserves

c.

No impact on loss reserves

d.

Transfer of loss reserves to the reinsurer

Discuss
Answer: (a).Reduction of loss reserves Explanation:A loss portfolio transfer results in the reduction of loss reserves on the insurer's balance sheet to the extent of the transfer of outstanding losses to reinsurers.
Q56.
In which of the following countries did the Risk Retention Group originate?

a.

The US

b.

The UK

c.

India

d.

China

Discuss
Answer: (a).The US Explanation:The Risk Retention Group originated in the United States. Risk Retention Groups are specialized insurance entities that were created under the provisions of the federal Liability Risk Retention Act of 1986 in the United States. These groups allow policyholders with similar risk profiles to form their own insurance companies to provide coverage for their collective risks.
Q57.
What is a derivative security?

a.

A financial security with a fixed value

b.

A financial security whose value depends on primary variables

c.

A financial security issued by the government

d.

A financial security that can only be traded on a specific exchange

Discuss
Answer: (b).A financial security whose value depends on primary variables Explanation:A derivative security is a financial security whose value depends upon more primary variables such as stock prices, exchange rates, and interest rates.
Q58.
What are the main forms of derivatives?

a.

Stocks and bonds

b.

Futures and forwards

c.

Commodities and currencies

d.

Options and swaps

Discuss
Answer: (d).Options and swaps Explanation:The main forms of derivatives are options and swaps.
Q59.
What is the purpose of futures and forwards in derivative trading?

a.

To lock in a price for a future transaction

b.

To provide one-sided protection

c.

To exchange risk under different terms

d.

To opt out of a trade in the future

Discuss
Answer: (a).To lock in a price for a future transaction Explanation:Futures and forwards agreements allow two parties to lock in a price for a future transaction, serving as instruments for hedging risk.
Q60.
In options trading, what is a call option?

a.

The buyer retains the right to opt out of the trade

b.

The seller retains the right to opt out of the trade

c.

The buyer holds the right to opt out of the trade

d.

The seller holds the right to opt out of the trade

Discuss
Answer: (c).The buyer holds the right to opt out of the trade Explanation:In options trading, a call option refers to a situation where the buyer holds the right to opt out of the trade.
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