Forms of Reinsurance MCQs

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Forms of Reinsurance MCQs | Page 1 of 6

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Q1.
What are the two main ways in which a reinsurance contract can be arranged?

a.

Facultative reinsurance and Treaty reinsurance

b.

Indemnity reinsurance and Non-indemnity reinsurance

c.

Proportional reinsurance and Non-proportional reinsurance

d.

Surplus reinsurance and Quota-share reinsurance

Discuss
Answer: (a).Facultative reinsurance and Treaty reinsurance Explanation:There are only two ways a reinsurance contract can be arranged - one-off for a single policy called facultative reinsurance, and automatic for a defined group of policies called treaty reinsurance.
Q2.
What is facultative reinsurance?What is treaty reinsurance?

a.

A reinsurance contract that covers a defined group of policiesA reinsurance contract that covers a defined group of policies

b.

A standard contract used for reinsurance protectionA standard contract used for reinsurance protection

c.

A one-off reinsurance contract for a single policyA one-off reinsurance contract for a single policy

d.

A non-standard contract used for reinsurance protectionA non-standard contract used for reinsurance protection

Discuss
Answer: (b).A one-off reinsurance contract for a single policyA reinsurance contract that covers a defined group of policies Explanation:Facultative reinsurance is a one-off reinsurance contract for a single policy.Treaty reinsurance is an automatic reinsurance contract for a defined group of policies.
Q3.
What is facultative reinsurance?

a.

A reinsurance contract that covers a defined group of policies

b.

A standard contract used for reinsurance protection

c.

A one-off reinsurance contract for a single policy

d.

A non-standard contract used for reinsurance protection

Discuss
Answer: (c).A one-off reinsurance contract for a single policy Explanation:Facultative reinsurance is a one-off reinsurance contract for a single policy.
Q4.
What is the purpose of a reinsurance contract?

a.

To indemnify the reinsurer for losses occurring on its insurance policies

b.

To indemnify the insured for losses occurring on its insurance policies

c.

To indemnify the insurer for losses occurring on its insurance policies covered by the reinsurance contract

d.

To indemnify the reinsurer for losses occurring on its reinsurance policies

Discuss
Answer: (c).To indemnify the insurer for losses occurring on its insurance policies covered by the reinsurance contract Explanation:Under a reinsurance contract, an insurer is indemnified for losses occurring on its insurance policies covered by the reinsurance contract.
Q5.
Which of the following is a type of reinsurance contract?

a.

Facilitative reinsurance

b.

Entreaty reinsurance

c.

Facultative reinsurance

d.

Treated reinsurance

Discuss
Answer: (c).Facultative reinsurance Explanation:There are two main types of reinsurance contracts: Facultative reinsurance and Treaty reinsurance.
Q6.
What is facultative reinsurance?

a.

A method of reinsuring risks on an individual basis where the insurer has the obligation to cede a risk from an original insured

b.

A method of reinsuring risks on an individual basis where the reinsurer has the option of accepting or declining each proposal

c.

A method of reinsuring risks on a group basis where the reinsurer has the obligation to accept a defined group of policies

d.

A method of reinsuring risks on a group basis where the insurer has the option of ceding a defined group of policies

Discuss
Answer: (b).A method of reinsuring risks on an individual basis where the reinsurer has the option of accepting or declining each proposal Explanation:Facultative reinsurance is a method of reinsuring risks on an individual basis where the reinsurer has the option of accepting or declining each proposal.
Q7.
What is the definition of facultative reinsurance?

a.

"A reinsurance contract under which the ceding insurer has the option to cede and the reinsurer has the option to accept a specific risk of a specific insured"

b.

"A reinsurance contract under which the reinsurer has the option to cede and the ceding insurer has the obligation to accept a specific risk of a specific insured"

c.

"A reinsurance contract under which the reinsurer has the obligation to cede and the ceding insurer has the option to accept a specific risk of a specific insured"

d.

"A reinsurance contract under which the ceding insurer has the obligation to cede and the reinsurer has the option to accept a specific risk of a specific insured"

Discuss
Answer: (a)."A reinsurance contract under which the ceding insurer has the option to cede and the reinsurer has the option to accept a specific risk of a specific insured" Explanation:Facultative reinsurance is defined as "a reinsurance contract under which the ceding insurer has the option to cede and the reinsurer has the option to accept a specific risk of a specific insured".
Q8.
Facultative reinsurance can be transacted on which basis?

a.

Only proportional basis

b.

Only non-proportional basis

c.

Both proportional and non-proportional basis

d.

Neither proportional nor non-proportional basis

Discuss
Answer: (c).Both proportional and non-proportional basis Explanation:Facultative reinsurance may be transacted on either proportional or non-proportional basis.
Q9.
What is the purpose of obtaining reinsurance coverage before accepting to insure a client in facultative reinsurance?

a.

To exceed the reinsurance terms applying to the direct insurance

b.

To back up the judgment of the original underwriter at the insurer's office

c.

To avoid the administrative costs of treaty reinsurance

d.

To obtain a better premium from the reinsurer

Discuss
Answer: (b).To back up the judgment of the original underwriter at the insurer's office Explanation:When reinsuring facultatively, the insurer obtains reinsurance coverage before accepting to insure a client to back up the judgment of the original underwriter at the insurer's office who will often benefit from the reinsurer's knowledge of a particular risk or class of risk.
Q10.
What are some strategic uses of facultative reinsurance?

a.

To reinsure hazardous risks not protected by treaty arrangements

b.

To reduce the liability to treaty reinsurers on certain risks

c.

To provide extra capacity

d.

All of the above

Discuss
Answer: (d).All of the above Explanation:The strategic and widespread use of facultative reinsurance includes i. to reinsure hazardous risks not protected by treaty arrangements, ii. to reduce the liability to treaty reinsurers on certain risks, iii. to reduce the insurer's liability in a certain area, iv. to provide extra capacity and v. to obtain the reinsurer's advice on doubtful risks.
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