Glossary of Reinsurance Terms MCQs

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Glossary of Reinsurance Terms MCQs | Page 7 of 10

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Q61.
What is an "Obligatory Treaty" in reinsurance?

a.

A reinsurance contract that must be accepted by the ceding insurer

b.

A reinsurance contract that allows the ceding insurer to choose whether to cede business

c.

A reinsurance contract that requires the ceding insurer to cede business according to contract terms

d.

A reinsurance contract that only covers specific types of risks

Discuss
Answer: (c).A reinsurance contract that requires the ceding insurer to cede business according to contract terms Explanation:"Obligatory Treaty" can be defined as a reinsurance contract (usually pro rata) in which the ceding insurer must cede the subject matter business according to the terms of the contract and it must be accepted by the reinsurer.
Q62.
How is "occurrence" defined in insurance?

a.

An incident, event, or happening in a non-insurance context

b.

Continual, gradual, or repeated exposure to an adverse condition

c.

An accident resulting in sudden damage or injury

d.

The intentional and expected exposure to a hazardous condition

Discuss
Answer: (b).Continual, gradual, or repeated exposure to an adverse condition Explanation:In insurance, "occurrence" is defined as continual, gradual, or repeated exposure to an adverse condition that is neither intended nor expected to result in injury or damage. It contrasts with an accident, which is a sudden happening.
Q63.
What does "offset" mean in the context of agreements or transactions?

a.

To reduce the owed amount by crediting amounts owed by the second party

b.

To increase the owed amount by crediting amounts owed by the second party

c.

To transfer the owed amount from one agreement to another

d.

To calculate the owed amount based on the total transactions made

Discuss
Answer: (a).To reduce the owed amount by crediting amounts owed by the second party Explanation:"Offset" can be defined as the act of reducing the amount owed by one party to a second party under one agreement or transaction by crediting the first party with amounts owed by the second party under other agreements or transactions. It is used to determine the net amount owed between the parties.
Q64.
What are "Original Conditions" in reinsurance?

a.

The terms and conditions of the original policy written by the insurer

b.

The modified terms and conditions of the reinsurance contract

c.

The specific conditions applied to facultative reinsurance only

d.

The conditions that are waived in the reinsurance contract

Discuss
Answer: (a).The terms and conditions of the original policy written by the insurer Explanation:"Original Conditions" in both treaty and facultative reinsurance refer to all the terms of the original policy written by the insurer. These terms are incorporated by reference in the reinsurance contract unless modified.
Q65.
What is an "Original Insurer" in the context of reinsurance?

a.

The insurer that writes policies requiring reinsurance

b.

The insurer that provides reinsurance coverage to other insurers

c.

The insurer that originally purchased the policy from the policyholder

d.

The insurer that specializes in underwriting original policies

Discuss
Answer: (c).The insurer that originally purchased the policy from the policyholder Explanation:The "Original Insurer" can be defined as the insurer that writes a policy for a policyholder, regardless of whether reinsurance is needed. It refers to the insurer that initially enters into a contract with the policyholder.
Q66.
What does "PML" stand for in insurance terminology?

a.

Potential Maximum Loss

b.

Projected Market Liability

c.

Predicted Minimum Loss

d.

Property Maximum Loss

Discuss
Answer: (d).Property Maximum Loss Explanation:"PML" stands for "Property Maximum Loss." It refers to the anticipated maximum property fire loss that could occur, taking into account the normal functioning of protective features. It helps inform underwriting decisions and influences the amount of reinsurance ceded on a risk.
Q67.
How is a "Pool" defined in the insurance and reinsurance industry?

a.

A collective agreement between insurers to share losses and profits

b.

A group of insurers specializing in underwriting specific classes of business

c.

A jointly managed underwriting operation for insurance or reinsurance

d.

An association of insurers dedicated to providing coverage for high-risk risks

Discuss
Answer: (c).A jointly managed underwriting operation for insurance or reinsurance Explanation:A "Pool" as a joint underwriting operation in which participants assume a predetermined and fixed interest in all business written. Pools are independently managed by professionals, and members share in the premiums, losses, expenses, and profits. The terms "association" and "syndicate" are synonymous with a pool.
Q68.
What does "Portfolio" refer to in the insurance and reinsurance context?

a.

A collection of insurer investments

b.

The combined value of all outstanding losses

c.

The total number of policies in force

d.

All of the above

Discuss
Answer: (d).All of the above Explanation:"Portfolio" can refer to a defined body of insurance in force, outstanding losses, or insurer investments. It can describe the collection of policies, the cumulative value of all losses, or the investments made by the insurer.
Q69.
What is "Portfolio Runoff" in reinsurance?

a.

The transfer of insurance liability from an insurer to a reinsurer

b.

The process of continuing to reinsure a portfolio until all ceded premium is earned or all losses are settled

c.

The transfer of outstanding losses under policies from the reinsurer to the insurer

d.

The ongoing management of an insurer's investment portfolio

Discuss
Answer: (b).The process of continuing to reinsure a portfolio until all ceded premium is earned or all losses are settled Explanation:"Portfolio Runoff" can be defined as the process of reinsuring a portfolio until all ceded premium is earned or all losses are settled, or both. It involves the ongoing management of the portfolio until all obligations are fulfilled.
Q70.
What is a "Portfolio Transfer" in the insurance and reinsurance industry?

a.

The transfer of insurance liability from a reinsurer to an insurer

b.

The transfer of unearned premium reserve on policies from an insurer to a reinsurer

c.

The transfer of outstanding losses under policies from an insurer to a reinsurer

d.

The transfer of an insurer's investment portfolio to a reinsurer

Discuss
Answer: (a).The transfer of insurance liability from a reinsurer to an insurer Explanation:A "Portfolio Transfer" involves the transfer of in-force insurance liability from an insurer to a reinsurer (or vice versa). This can be done by paying the unearned premium reserve or the outstanding loss reserve. The former is known as a premium portfolio transfer, and the latter is a loss portfolio transfer.
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