Glossary of Reinsurance Terms MCQs

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Glossary of Reinsurance Terms MCQs | Page 3 of 10

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Q21.
What does the term "cede" refer to in the context of reinsurance?

a.

Passing on financial interests to reinsurers

b.

Cancelling an insurance policy

c.

Increasing the liability of insurance policies

d.

Reducing the reinsurer's participation

Discuss
Answer: (a).Passing on financial interests to reinsurers Explanation:Cede" refers to the decision of the reinsured to pass on to a reinsurer all or part of their financial interests with the objective of reducing possible liability from insurance policies.
Q22.
What does the term "cede" refer to in the context of reinsurance?What is the key feature of a claims made basis in insurance or reinsurance contracts?

a.

Passing on financial interests to reinsurersCoverage applies only to losses occurring in a specific period

b.

Cancelling an insurance policyCoverage applies to losses occurring after the policy period

c.

Increasing the liability of insurance policiesCoverage applies to losses regardless of the policy period

d.

Reducing the reinsurer's participationCoverage applies to losses occurring before the policy period

Discuss
Answer: (a).Passing on financial interests to reinsurersCoverage applies only to losses occurring in a specific period Explanation:Cede" refers to the decision of the reinsured to pass on to a reinsurer all or part of their financial interests with the objective of reducing possible liability from insurance policies.A claims made basis provision in insurance or reinsurance contracts means that coverage applies only to losses that occur and for which claims are made during the period the policy is in force.
Q23.
What is the purpose of the closing particular in reinsurance?

a.

Finalize the details of a risk for placement with reinsurers

b.

Provide updates on claim settlements

c.

Determine the ceding commission amount

d.

Calculate the reinsurance premium

Discuss
Answer: (a).Finalize the details of a risk for placement with reinsurers Explanation:The closing particular involves providing final advice on full particulars of a risk for which placement with reinsurers is completed. It is the stage where all necessary details are finalized.
Q24.
What does the term "commission" refer to in insurance and reinsurance?

a.

Premium paid by policyholders

b.

Fee paid to brokers for placement services

c.

Fee paid to agents for placement services

d.

Percentage of losses covered by reinsurers

Discuss
Answer: (c).Fee paid to agents for placement services Explanation:"Commission" in insurance and reinsurance refers to the percentage of premium paid to an agent for insurance placement services. It is a compensation for the agent's role in facilitating the placement of insurance or reinsurance.
Q25.
What does the ceding commission in reinsurance include?

a.

Reinsurer's profit margin

b.

Reinsurer's acquisition cost and administration expense

c.

Reinsured's profit margin

d.

Reinsured's acquisition cost and administration expense

Discuss
Answer: (b).Reinsurer's acquisition cost and administration expense Explanation:The ceding commission in reinsurance includes a percentage of the reinsurance premium paid by the reinsurer for part or all of the reinsured's acquisition cost and administration expense. It may also include an element of profit to the reinsured.
Q26.
What does the term "overriding commission" typically refer to in reinsurance?

a.

Incremental commission paid on retrocession

b.

Compensation for premium volume produced by other agents

c.

Compensation for premium volume produced by the same agent

d.

Additional fee charged by brokers for placement services

Discuss
Answer: (b).Compensation for premium volume produced by other agents Explanation:Overriding commission is typically paid to compensate an existing agent for the premium volume produced by other agents in a given geographic territory. It rewards the agent for generating business from other sources.
Q27.
What is the purpose of a commutation clause in reinsurance?

a.

Estimating future obligations between the reinsured and reinsurer

b.

Providing coverage in case of insolvency

c.

Discharging all obligations between the reinsured and reinsurer

d.

Adjusting the premium based on the completion of the contract period

Discuss
Answer: (c).Discharging all obligations between the reinsured and reinsurer Explanation:A commutation clause in reinsurance provides for the complete discharge of all obligations, including future obligations, between the reinsured and reinsurer through an estimated settlement of all incurred and outstanding losses.
Q28.
What does a cover note indicate in the context of reinsurance?

a.

Completion of the treaty or contract period

b.

Privity of contract between the reinsured and reinsurer

c.

Existence of coverage

d.

Adjustment of deposit premium

Discuss
Answer: (c).Existence of coverage Explanation:A cover note is a written statement indicating that coverage is in place. It serves as evidence of the existence of coverage in reinsurance.
Q29.
What does a cut-through clause allow in the event of the reinsured's insolvency?

a.

Direct payment of a loss to the reinsurer

b.

Direct payment of a loss to the original insured by the reinsurer

c.

Direct payment of a loss to the reinsured's agent

d.

Direct payment of a loss to the reinsured's creditors

Discuss
Answer: (b).Direct payment of a loss to the original insured by the reinsurer Explanation:A cut-through clause allows, in the event of the reinsured's insolvency, any part of a loss covered by reinsurance to be paid directly to the original insured by the reinsurer. This bypasses the usual requirement of privity of contract.
Q30.
What is a deposit premium in reinsurance?

a.

The premium paid by the reinsured for coverage

b.

The premium adjusted based on the completion of the treaty period

c.

The premium received by the reinsurer at the inception of the treaty

d.

The premium subject to adjustment on completion of the contract period

Discuss
Answer: (c).The premium received by the reinsurer at the inception of the treaty Explanation:A deposit premium arises when the actual premium is received by the reinsurer as a deposit at the inception of the treaty or contract period. It is subject to adjustment based on the completion of the treaty or contract period.
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