Glossary of Reinsurance Terms MCQs

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Glossary of Reinsurance Terms MCQs | Page 5 of 10

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Q41.
What is a ground-up loss in insurance?

a.

The loss amount after applying the deductible

b.

The total loss incurred by the insured before any deductions

c.

The loss amount subject to per risk excess coverage

d.

The net loss after accounting for reinsurance recoveries

Discuss
Answer: (b).The total loss incurred by the insured before any deductions Explanation:In insurance, a ground-up loss refers to the gross amount of loss occurring to an insured and subject to the insured's insurance policy. It represents the total loss before the application of deductibles or any other deductions required by the policy.
Q42.
In reinsurance, what does the term "Follow the Fortunes" mean?

a.

The reinsurer assumes all financial risks of the reinsured

b.

The reinsurer accepts all claims made by the reinsured

c.

The reinsurer follows the reinsured's investment decisions

d.

The reinsurer supports the reinsured's underwriting outcomes

Discuss
Answer: (d).The reinsurer supports the reinsured's underwriting outcomes Explanation:"Follow the Fortunes" is a concept in reinsurance where the reinsurer agrees to support the underwriting outcomes of the reinsured. The reinsurer aligns with the business decisions and results of the reinsured in all matters falling under the agreement.
Q43.
What is a hard market in the context of reinsurance?

a.

A market with low demand and oversupply

b.

A market characterized by excessive underwriting and pricing

c.

A market with a scarcity of products and prudent underwriting

d.

A market with readily available products and deficient pricing

Discuss
Answer: (c).A market with a scarcity of products and prudent underwriting Explanation:A hard market in reinsurance is characterized by a scarcity of products or services for purchase. It is associated with prudent underwriting and adequate pricing.
Q44.
What does the term "hours clause" refer to in reinsurance?

a.

A clause that limits the time period for reporting claims

b.

A clause that specifies the duration of a reinsurance policy

c.

A clause that defines the working hours for reinsurance transactions

d.

A clause that determines the coverage period for specific occurrences

Discuss
Answer: (d).A clause that determines the coverage period for specific occurrences Explanation:The hours clause is a colloquial term used in reinsurance to limit the time period during which claims resulting from a specific occurrence can be included as part of the loss subject to the coverage. It is commonly used in property reinsurance for events like windstorms, conflagrations, or earthquakes.
Q45.
What is meant by "Incurred But Not Reported (IBNR)" in reinsurance?

a.

Claims that have been reported but not yet paid by the reinsurer

b.

Claims that have occurred but not yet reported to the reinsurer

c.

Future liability for losses that have already occurred but not reported

d.

Expected future development of reported claims in the reinsurer's records

Discuss
Answer: (c).Future liability for losses that have already occurred but not reported Explanation:IBNR refers to the liability for future payments on losses that have already occurred but have not yet been reported in the reinsurer's records. It may also include expected future development on claims that have been reported.
Q46.
What does the insolvency clause in reinsurance contracts ensure?

a.

Payment directly to the reinsured in case of insolvency

b.

Reduction of reinsurance payment due to insolvency

c.

Non-payment of claims in case of reinsurer's insolvency

d.

Payment directly to the insurer or its liquidator in case of insolvency

Discuss
Answer: (d).Payment directly to the insurer or its liquidator in case of insolvency Explanation:The insolvency clause, included in most reinsurance contracts, ensures that reinsurance payments are payable directly to the insurer or its liquidator in the event of the reinsured's insolvency. It prevents reduction of payment due to insolvency and ensures claims are honored.
Q47.
What does an intermediary clause in a reinsurance contract specify?

a.

The specific intermediary or broker involved in the contract

b.

The payment terms between the reinsured insurer and the intermediary

c.

The communication channels used during the negotiation process

d.

The involvement of multiple intermediaries in the contract

Discuss
Answer: (a).The specific intermediary or broker involved in the contract Explanation:An intermediary clause in a reinsurance contract identifies the specific intermediary or broker involved in negotiating the contract, communicating information, and transmitting funds. It helps clarify the roles and responsibilities of the intermediary in the reinsurance arrangement.
Q48.
What is the purpose of a jurisdiction clause in a reinsurance treaty wording?

a.

To specify the governing laws for the reinsurance contract

b.

To define the territorial jurisdiction for claims settlement

c.

To establish the jurisdiction of the intermediary or broker

d.

To resolve disputes related to the treaty wording

Discuss
Answer: (a).To specify the governing laws for the reinsurance contract Explanation:A jurisdiction clause inserted in a reinsurance treaty wording defines the laws under which any dispute related to the contract shall be resolved. It helps determine the applicable legal framework for the reinsurance arrangement.
Q49.
What does the "Law of Large Numbers" postulate in insurance?

a.

The larger the number of exposure units, the more predictable the outcome

b.

The probability of an event decreases with the number of repetitions

c.

The outcome of repeated events becomes less predictable over time

d.

The probability of a favorable outcome increases with each repetition

Discuss
Answer: (a).The larger the number of exposure units, the more predictable the outcome Explanation:The "Law of Large Numbers" is a mathematical concept stating that the more times an event is repeated or the larger the number of homogeneous exposure units in insurance, the more predictable the outcome becomes. It emphasizes the importance of a sufficient sample size for accurate risk assessment.
Q50.
What is a "layer" in the context of excess of loss reinsurance?

a.

The primary layer of insurance coverage provided by the reinsurer

b.

The portion of the reinsurance contract specifying terms and conditions

c.

The total amount of reinsurance protection needed by the insurer

d.

A separate contract within a series providing a specific limit of coverage

Discuss
Answer: (d).A separate contract within a series providing a specific limit of coverage Explanation:In excess of loss reinsurance, the total amount of reinsurance protection needed by the insurer is split into separate contracts or layers, each with its own limit of coverage. These layers fit on top of each other and have similar or identical terms.
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