Glossary of Reinsurance Terms MCQs

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Glossary of Reinsurance Terms MCQs | Page 9 of 10

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Q81.
What is "Run-Off Cancellation or Termination"?

a.

The process of transferring insurance liability from a ceding insurer to a reinsurer

b.

The termination of a reinsurance contract by the reinsurer

c.

The reduction of the amount owed by one party to another through setoff

d.

The provision in a reinsurance contract stating the reinsurer's continued liability for in-force policies after termination

Discuss
Answer: (d).The provision in a reinsurance contract stating the reinsurer's continued liability for in-force policies after termination Explanation:"Run-Off Cancellation or Termination" can be defined as a provision in the termination clause of a reinsurance contract. It states that the reinsurer shall remain liable for losses under reinsured policies in force at the date of termination due to occurrences taking place after the termination date. The run-off period is typically limited to twelve months.
Q82.
What is "Setoff" in the context of reinsurance?

a.

The reinsuring of reinsurance

b.

The process of reducing the amount owed between parties through crediting other obligations

c.

The calculation of risk-based capital requirements

d.

The termination of a reinsurance contract by the reinsurer

Discuss
Answer: (b).The process of reducing the amount owed between parties through crediting other obligations Explanation:"Setoff" is defined as the reduction of the amount owed by one party to another by crediting other obligations between them. It is a process used to determine the net amount owed between parties in various agreements or transactions.
Q83.
What is "Sliding Scale Commission" in the context of pro rata treaty reinsurance?

a.

A commission paid by the reinsurer based on the reinsured's loss ratio

b.

A commission that increases with the loss ratio of the reinsured

c.

A retroactive pricing mechanism for excess of loss reinsurance

d.

A contractual formula where the ceding commission varies inversely to the loss ratio

Discuss
Answer: (d).A contractual formula where the ceding commission varies inversely to the loss ratio Explanation:"Sliding Scale Commission" can be defined as a contractual formula used in pro rata treaty reinsurance. It states that the ultimate ceding commission payable varies inversely to the loss ratio within specified parameters. In other words, as the loss ratio increases, the ceding commission decreases.
Q84.
What is a "Slip" in the context of reinsurance?

a.

A document outlining the risk particulars and conditions for reinsurance protection

b.

A commission paid by the reinsurer to the retrocessionnaire

c.

A retroactive pricing mechanism for pro rata reinsurance

d.

A form of excess of loss reinsurance for specific business measures

Discuss
Answer: (a).A document outlining the risk particulars and conditions for reinsurance protection Explanation:A "Slip" can be defined as a document that sets out the risk particulars, terms, and conditions for which reinsurance protection is sought directly or through a broker. It serves as the basis for initiating reinsurance discussions and transactions.
Q85.
What is "Solvency Margin"?

a.

The excess of assets over liabilities to demonstrate an insurer's ability to carry on business

b.

The amount of reinsurance recoveries received by the reinsured

c.

The calculation of commissions based on the loss ratio in reinsurance contracts

d.

The excess of liabilities over assets as determined by law and regulation

Discuss
Answer: (a).The excess of assets over liabilities to demonstrate an insurer's ability to carry on business Explanation:"Solvency Margin" can be defined as the excess of assets over liabilities as determined in compliance with law and regulation. It is a measure used to demonstrate an insurer's financial strength and ability to carry on business.
Q86.
What is "Stop-Loss Reinsurance" also known as?

a.

Excess of loss reinsurance

b.

Sliding scale commission reinsurance

c.

Retroactive pricing reinsurance

d.

Surplus share reinsurance

Discuss
Answer: (a).Excess of loss reinsurance Explanation:"Stop-Loss Reinsurance" is a form of excess of loss reinsurance. It indemnifies the reinsured against the amount by which their losses incurred during a specific period exceed an agreed amount or percentage. "Stop-Loss Reinsurance" is known by various names, including stop-loss reinsurance, stop-loss-ratio reinsurance, or excess of loss ratio reinsurance.
Q87.
What is "Surplus Reinsurance"?

a.

A form of excess of loss reinsurance

b.

A type of reinsurance treaty

c.

A retroactive pricing mechanism for reinsurance

d.

A pro rata reinsurance that indemnifies the ceding insurer up to the surplus insurance liability

Discuss
Answer: (d).A pro rata reinsurance that indemnifies the ceding insurer up to the surplus insurance liability Explanation:"Surplus Reinsurance" can be defined as a form of pro rata reinsurance that indemnifies the ceding insurer against loss to the extent of the surplus insurance liability ceded. It functions on a share basis similar to quota share, and the reinsurer's pro rata share of insurance increases as the amount of insurance increases.
Q88.
What is a "Surplus Treaty" in pro rata reinsurance?

a.

A treaty exclusively applicable to excess of loss reinsurance

b.

A treaty that defines the amount of each cession as the gross liability exceeding the net liability retention

c.

A treaty that provides indemnity by the reinsurer for loss exceeding a predetermined amount

d.

A treaty for sharing policy liability, premiums, and losses between the reinsured and reinsurer

Discuss
Answer: (b).A treaty that defines the amount of each cession as the gross liability exceeding the net liability retention Explanation:"Surplus Treaty" can be defined as a term exclusive to pro rata reinsurance treaties. It defines the amount of each cession as the gross (policy) liability that exceeds or is "surplus" to the agreed net liability retention. In other words, it covers the portion of liability that goes beyond the retention limit.
Q89.
What is a "Syndicate" in the insurance industry?

a.

A group of underwriters in Lloyd's of London specializing in various types of insurance

b.

An association of reinsurers for pursuing specific insurance objectives

c.

A type of excess of loss reinsurance contract

d.

A form of retrocession between primary insurance insurers

Discuss
Answer: (a).A group of underwriters in Lloyd's of London specializing in various types of insurance Explanation:A "Syndicate" can be defined as an association of individuals or organizations, specifically referring to individual underwriters in Lloyd's of London. These underwriters associate in separate syndicates to write different types of insurance, such as marine insurance, reinsurance, life insurance, and more. Each syndicate has a syndicate manager responsible for administrative details.
Q90.
What is a "Treaty" in the context of reinsurance?

a.

A reinsurance agreement between the reinsured insurer and the reinsurer

b.

A retroactive pricing mechanism for excess of loss reinsurance

c.

An insurance policy issued by the reinsurer to the ceding insurer

d.

An agreement between primary insurance insurers for retrocession purposes

Discuss
Answer: (a).A reinsurance agreement between the reinsured insurer and the reinsurer Explanation:A "Treaty" can be defined as a reinsurance agreement between the reinsured insurer and the reinsurer. It specifies the technical particulars applicable to the reinsurance of certain classes of business. Reinsurance treaties can be classified as participating type or excess type, depending on whether they involve sharing of liability, premiums, and losses or indemnity for losses exceeding a predetermined amount.
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