Glossary of Reinsurance Terms MCQs

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Glossary of Reinsurance Terms MCQs | Page 4 of 10

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Q31.
What is direct written premium in insurance or reinsurance?

a.

The premium received by the reinsurer for assumed risks

b.

The premium income of an insurer before any reinsurance transactions

c.

The premium income of an insurer adjusted for additional or return premiums

d.

The premium proportionate to the period of expired insurance or reinsurance

Discuss
Answer: (b).The premium income of an insurer before any reinsurance transactions Explanation:Direct written premium refers to all the premium income of an insurer before any reinsurance is ceded or assumed. It represents the total premium income generated by the insurer.
Q32.
What does earned premium represent in insurance or reinsurance?

a.

The premium received by the reinsurer for assumed risks

b.

The premium income of an insurer adjusted for additional or return premiums

c.

The premium proportionate to the period of expired insurance or reinsurance

d.

The premium subject to adjustment on completion of the contract period

Discuss
Answer: (c).The premium proportionate to the period of expired insurance or reinsurance Explanation:Earned premium refers to the premium that is proportionate to the period of insurance or reinsurance that has expired. It represents the portion of premium for which there would be no further obligation to entertain any future claims.
Q33.
What is the purpose of excess of loss reinsurance?

a.

To indemnify the reinsured against a specified loss retention

b.

To provide proportional coverage for all types of losses

c.

To share the risk with the reinsured based on the loss amount

d.

To automatically renew coverage on the anniversary date

Discuss
Answer: (a).To indemnify the reinsured against a specified loss retention Explanation:Excess of loss reinsurance is a type of reinsurance that indemnifies the reinsured against all or a part of the amount of a loss that exceeds a specified loss retention. The purpose is to provide coverage for losses beyond the retention level.
Q34.
What happens at the expiration of an insurance policy?

a.

The policy is renewed automatically

b.

The policy is canceled by the reinsurer

c.

The coverage continues until canceled by the reinsured

d.

The coverage ceases if not renewed following the anniversary date

Discuss
Answer: (d).The coverage ceases if not renewed following the anniversary date Explanation:Expiration refers to the cessation of cover if the policy is not renewed following the anniversary date. If the policy is not renewed, the coverage will no longer be in effect. Therefore, option d is the correct answer.
Q35.
What is facultative reinsurance?

a.

Reinsurance of all insurance policies provided by a single policy

b.

Reinsurance that shares the risk between the reinsured and reinsurer

c.

Reinsurance that allows both parties to accept or reject individual risks

d.

Reinsurance that automatically accepts all individual risks

Discuss
Answer: (c).Reinsurance that allows both parties to accept or reject individual risks Explanation:Facultative reinsurance involves the reinsurance of part or all of the insurance provided by a single policy, based on the sharing of risk. The term "facultative" indicates that both the reinsured and reinsurer have the option to accept or reject individual risks.
Q36.
What is a facultative treaty in reinsurance?

a.

A reinsurance contract that automatically accepts all individual risks

b.

A reinsurance contract that obligates the ceding insurer to cede risks

c.

A reinsurance contract that allows the reinsurer to decline individual risks

d.

A reinsurance contract that describes the handling of individual facultative reinsurances

Discuss
Answer: (d).A reinsurance contract that describes the handling of individual facultative reinsurances Explanation:A facultative treaty is a reinsurance contract under which the ceding insurer has the option to cede and the reinsurer has the option to accept or decline individual risks. The contract outlines how individual facultative reinsurances will be handled.
Q37.
What does a flat rate refer to in reinsurance?

a.

A rate applicable to excess limits

b.

A rate subject to subsequent adjustment

c.

A rate based on the ceding insurer's premium income

d.

A rate applicable to proportional coverage

Discuss
Answer: (c).A rate based on the ceding insurer's premium income Explanation:A flat rate in reinsurance refers to a fixed rate that is not subject to any subsequent adjustment. It is a reinsurance premium rate that is applicable to the entire premium income derived by the ceding insurer from the business ceded to the reinsurer.
Q38.
What does the concept of "Follow the Fortunes" imply in a reinsurance relationship?

a.

The reinsurer assumes all liabilities of the ceding insurer

b.

The reinsurer follows the investment fortunes of the ceding insurer

c.

The reinsurer supports the business decisions of the ceding insurer

d.

The reinsurer participates in the underwriting process of the ceding insurer

Discuss
Answer: (c).The reinsurer supports the business decisions of the ceding insurer Explanation:The concept of "Follow the Fortunes" in a reinsurance relationship means that the reinsurer agrees to support and align with the business decisions and outcomes of the ceding insurer. The reinsurer follows the fortunes of the ceding insurer in all matters falling under the agreement.
Q39.
What is fronting in the context of insurance?

a.

A fraudulent practice by licensed insurers

b.

A legal arrangement for regulatory compliance

c.

An agreement between licensed and unlicensed insurers

d.

A method to bypass reinsurance requirements

Discuss
Answer: (b).A legal arrangement for regulatory compliance Explanation:Fronting refers to an arrangement where one licensed insurer issues a policy on a risk for and at the request of one or more other unlicensed insurers with the intention of passing the entire risk through reinsurance to the other insurer(s). Fronting is legal as long as the purpose is to comply with regulatory requirements.
Q40.
What does the term "gross line" represent in insurance?

a.

The amount of liability retained by the reinsurer

b.

The total amount of premium written by the ceding insurer

c.

The net amount of loss after reinsurance recoveries

d.

The total amount of liability written by the insurer, including reinsurance

Discuss
Answer: (d).The total amount of liability written by the insurer, including reinsurance Explanation:The gross line represents the amount of liability an insurer has written on a risk, including the amount it has reinsured. It refers to the total exposure taken by the insurer, including the portion reinsured.
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