Glossary of Reinsurance Terms MCQs

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Glossary of Reinsurance Terms MCQs | Page 2 of 10

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Q11.
What does the term "Assume" or "Accept" refer to in reinsurance?

a.

Rejecting a reinsured's insurance or reinsurance

b.

Calculating written premiums for a treaty

c.

Accepting all or part of a reinsured's insurance or reinsurance

d.

Negotiating contracts of reinsurance on behalf of the reinsured

Discuss
Answer: (c).Accepting all or part of a reinsured's insurance or reinsurance Explanation:The term "Assume" or "Accept" in reinsurance refers to the act of accepting all or part of a reinsured's insurance or reinsurance on a risk or exposure through various forms of reinsurance.
Q12.
What does the term "Balance" represent in reinsurance?

a.

The ratio between written premium and maximum limit of liability

b.

The ratio desired for a specific treaty

c.

The process of negotiating reinsurance contracts

d.

A detailed report of insurance premiums and losses

Discuss
Answer: (a).The ratio between written premium and maximum limit of liability Explanation:"Balance" in reinsurance represents the ratio between the written premium under a treaty and the maximum limit of liability to which the reinsurer is exposed. If the desired ratio for a specific treaty is achieved, it is referred to as "balanced."
Q13.
What is the function of a "Binder" in reinsurance?

a.

To negotiate contracts of reinsurance on behalf of the reinsured

b.

To calculate maximum limit of liability

c.

To provide a detailed report of insurance premiums and losses

d.

To record reinsurance arrangements pending the issuance of a formal contract

Discuss
Answer: (d).To record reinsurance arrangements pending the issuance of a formal contract Explanation:A "Binder" in reinsurance serves as a record of reinsurance arrangements that are pending the issuance of a formal reinsurance contract, which eventually replaces the binder.
Q14.
What is the purpose of "Bordereaux" reporting in reinsurance?

a.

To calculate written premiums and losses policy-wise

b.

To provide detailed reports of insurance premiums and losses

c.

To negotiate contracts of reinsurance on behalf of the reinsured

d.

To demonstrate the effectiveness of reinsurance programs

Discuss
Answer: (b).To provide detailed reports of insurance premiums and losses Explanation:Bordereaux reporting involves submitting detailed reports of insurance premiums and losses policy-wise from a reinsured to a reinsurer. This reporting is usually done in respect of pro-rata reinsurance arrangements.
Q15.
Who is an intermediary that negotiates contracts of reinsurance on behalf of the reinsured?

a.

A reinsured

b.

A binder

c.

An acceptor

d.

A broker

Discuss
Answer: (d).A broker Explanation:A broker is an intermediary who negotiates contracts of reinsurance on behalf of the reinsured while receiving commission for placement and other services from the reinsurer.
Q16.
What is the burning cost used for in assessing a portfolio of business?

a.

Assessing profitability

b.

Assessing risk exposure

c.

Assessing underwriting performance

d.

Assessing market competitiveness

Discuss
Answer: (c).Assessing underwriting performance Explanation:The burning cost, which is the ratio of actual past losses to their corresponding premium, is used in assessing a portfolio of business. It helps in evaluating the underwriting performance of the business.
Q17.
How is capacity measured for an insurer?

a.

By its financial reserves

b.

By its market share

c.

By its underwriting expertise

d.

By its capability to accept risk

Discuss
Answer: (d).By its capability to accept risk Explanation:Capacity is a measure of an insurer's capability to accept a level of risk as proposed. It indicates the insurer's readiness to assume insurance or reinsurance business.
Q18.
What does the provision of cash loss in proportional contracts allow the reinsured to do?

a.

Make immediate claims for small losses

b.

Make periodic accounting settlements

c.

Receive immediate settlement for large losses

d.

Receive advance premium payments

Discuss
Answer: (c).Receive immediate settlement for large losses Explanation:The provision of cash loss in proportional contracts enables the reinsured to make a claim and receive immediate settlement for a large loss outside of the usual periodic accounting and settlement procedures.
Q19.
What does catastrophe reinsurance provide coverage for?

a.

Small-scale losses

b.

Routine claims

c.

Catastrophic events

d.

Reinsured's retention limit

Discuss
Answer: (c).Catastrophic events Explanation:Catastrophe reinsurance can be defined as a type of excess of loss reinsurance that indemnifies a reinsured for accumulation of losses from a catastrophic event. It specifically covers losses beyond a specified retention limit in such events.
Q20.
What is another term used to refer to the reinsured or ceding insurer?

a.

Insured

b.

Cedant

c.

Underwriter

d.

Reinsurer

Discuss
Answer: (b).Cedant Explanation:"Cedant" is another way to refer to the reinsured or ceding insurer. It is a common term used in the reinsurance industry.
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