Glossary of Reinsurance Terms MCQs

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Glossary of Reinsurance Terms MCQs | Page 10 of 10

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Q91.
What is a "Treaty" in the context of reinsurance?What is the meaning of "Uberrimae Fidei"?

a.

A reinsurance agreement between the reinsured insurer and the reinsurerAn insurance policy clause that limits liability

b.

A retroactive pricing mechanism for excess of loss reinsuranceA contractual term describing proportional reinsurance

c.

An insurance policy issued by the reinsurer to the ceding insurerA principle of utmost good faith applicable to reinsurance relationships

d.

An agreement between primary insurance insurers for retrocession purposesA method of calculating ultimate net loss

Discuss
Answer: (b).A reinsurance agreement between the reinsured insurer and the reinsurerA principle of utmost good faith applicable to reinsurance relationships Explanation:A "Treaty" can be defined as a reinsurance agreement between the reinsured insurer and the reinsurer. It specifies the technical particulars applicable to the reinsurance of certain classes of business. Reinsurance treaties can be classified as participating type or excess type, depending on whether they involve sharing of liability, premiums, and losses or indemnity for losses exceeding a predetermined amount."Uberrimae Fidei" can be defined as a defining characterization or quality of certain contractual relationships, including reinsurance. It emphasizes the importance of mutual trust and a strong consideration for the interests of the other party, even if they conflict with one's own. A breach of utmost good faith, particularly regarding the disclosure of risk elements, can lead to reformation or redress.
Q92.
What is "Ultimate Net Loss" in reinsurance?

a.

The total loss incurred by the reinsured

b.

The gross loss before any reinsurance recoveries

c.

The net loss after deducting defense costs

d.

The amount actually paid for the settlement of a claim

Discuss
Answer: (b).The gross loss before any reinsurance recoveries Explanation:"Ultimate Net Loss" refers to the unit of loss to which reinsurance applies, as determined by the reinsurance agreement. It represents the gross loss incurred, minus any recoveries from other reinsurance that reduce the loss specifically for the treaty in question.
Q93.
What does "Underlying" refer to in insurance or reinsurance?

a.

The primary layer of insurance or reinsurance coverage

b.

The excess layer of insurance or reinsurance coverage

c.

The retrocession layer of reinsurance coverage

d.

The net loss after deducting recoveries and reinsurance

Discuss
Answer: (a).The primary layer of insurance or reinsurance coverage Explanation:"Underlying" represents the amount of loss that attaches before the next higher excess layer of insurance or reinsurance comes into effect. It refers to the primary layer of coverage.
Q94.
What is the meaning of "Underwriting Year Experience"?

a.

The segregation of premiums and losses for a specific period

b.

The calculation of net risk based on underwriting guidelines

c.

The process of assessing policyholder applications for insurance

d.

The analysis of claims experience for a particular underwriting year

Discuss
Answer: (a).The segregation of premiums and losses for a specific period Explanation:"Underwriting Year Experience" involves segregating all premiums and losses associated with policies having an inception or renewal date within a given twelve-month period. It refers to the grouping of financial data for analysis and assessment.
Q95.
What does the term "Underwriting-Year Basis" refer to in rating?

a.

The use of premiums written and losses incurred in a specific year

b.

The calculation of net risk based on underwriting guidelines

c.

The evaluation of policyholder applications for insurance

d.

The analysis of claims experience for a particular underwriting year

Discuss
Answer: (a).The use of premiums written and losses incurred in a specific year Explanation:The "Underwriting-Year Basis" involves using all premiums written from policies written or renewed during the year and all losses related to those same policies, regardless of when the losses occur. It refers to considering the financial data for rating purposes.
Q96.
What is the definition of "Unearned Premium Reserve"?

a.

The sum of all premiums written in a specific period

b.

The amount of premium remaining after deducting expenses

c.

The reserve set aside for unpaid claims and losses

d.

The total of premiums representing unexpired policy periods

Discuss
Answer: (d).The total of premiums representing unexpired policy periods Explanation:"Unearned Premium Reserve" can be defined as the sum of all premiums representing the unexpired portions of policies or contracts that the insurer or reinsurer has on its books as of a specific date. It takes into account the average issue dates and the length of the term.
Q97.
What does "Utmost Good Faith" mean?

a.

Strict adherence to underwriting guidelines

b.

Honest and open communication in insurance transactions

c.

Disclosure of all policy exclusions and limitations

d.

Absence of any policyholder complaints

Discuss
Answer: (b).Honest and open communication in insurance transactions Explanation:"Utmost Good Faith" can be defined as firm adherence to promises made to another, including the disclosure of all relevant facts and complete trust in the fidelity of the other party. It emphasizes absolute honesty, openness, and the absence of any concealment or deception.
Q98.
What is the characteristic of a "Working Excess" reinsurance cover?

a.

It provides coverage for high severity losses

b.

It has a high indemnity and a high retention

c.

It anticipates loss frequency rather than loss severity

d.

It is a contract that covers all types of reinsurance

Discuss
Answer: (c).It anticipates loss frequency rather than loss severity Explanation:A "Working Excess" is a type of excess reinsurance cover that anticipates loss frequency. It usually has a low indemnity and attaches above a relatively low retention. This implies that it focuses on covering frequent losses rather than severe losses.
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