Law and Clauses Relating to Reinsurance Contracts MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on Law and Clauses Relating to Reinsurance Contracts, a fundamental topic in the field of IC85 Reinsurance Management. Whether you're preparing for competitive exams, honing your problem-solving skills, or simply looking to enhance your abilities in this field, our Law and Clauses Relating to Reinsurance Contracts MCQs are designed to help you grasp the core concepts and excel in solving problems.

In this section, you'll find a wide range of Law and Clauses Relating to Reinsurance Contracts mcq questions that explore various aspects of Law and Clauses Relating to Reinsurance Contracts problems. Each MCQ is crafted to challenge your understanding of Law and Clauses Relating to Reinsurance Contracts principles, enabling you to refine your problem-solving techniques. Whether you're a student aiming to ace IC85 Reinsurance Management tests, a job seeker preparing for interviews, or someone simply interested in sharpening their skills, our Law and Clauses Relating to Reinsurance Contracts MCQs are your pathway to success in mastering this essential IC85 Reinsurance Management topic.

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Law and Clauses Relating to Reinsurance Contracts MCQs | Page 11 of 19

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Q101.
What does the "Original conditions: Follow the fortunes" clause state?

a.

Reinsurances are subject to the same terms and conditions as the original insurance.

b.

Reinsurers must pay a higher premium rate than the ceding insurer.

c.

Reinsurers have the authority to modify the terms and conditions of the original insurance.

d.

Reinsurers are not liable for any losses incurred by the ceding insurer's insured.

Discuss
Answer: (a).Reinsurances are subject to the same terms and conditions as the original insurance. Explanation:The "Original conditions: Follow the fortunes" clause states that reinsurances are fully subject to the same terms and conditions as the original insurance. Reinsurers are bound by the same contractual obligations and coverage as the ceding insurer.
Q102.
What does the concept of "follow the fortunes" mean in reinsurance?

a.

Reinsurers take full responsibility for the ceding insurer's financial losses.

b.

Reinsurers are obligated to follow the ceding insurer's underwriting policy.

c.

Reinsurers pay the same premium rate as received by the ceding insurer.

d.

Reinsurers have the authority to modify the coverage terms for the ceding insurer's insured.

Discuss
Answer: (b).Reinsurers are obligated to follow the ceding insurer's underwriting policy. Explanation:The concept of "follow the fortunes" in reinsurance means that reinsurers follow the ceding insurer in their original contract of insurance with their insured. Reinsurers share the same underwriting policy and decisions made by the ceding insurer.
Q103.
How does the "follow the fortunes" clause apply to the ceding insurer's financial losses?

a.

Reinsurers are fully liable for the ceding insurer's financial losses.

b.

Reinsurers are not liable for any of the ceding insurer's financial losses.

c.

Reinsurers share the losses due to the insured's of the ceding insurer.

d.

Reinsurers only pay their share of the ceding insurer's financial losses.

Discuss
Answer: (c).Reinsurers share the losses due to the insured's of the ceding insurer. Explanation:The "follow the fortunes" clause does not apply to the ceding insurer's financial losses. If the ceding insurer goes into liquidation, the reinsurer is entitled to their share of premiums and will pay their share of the losses incurred by the insured of the bankrupt ceding insurer.
Q104.
What is the exception to the traditional concept of "follow the fortunes" in reinsurance?

a.

Financial reinsurance

b.

Catastrophe excess of loss reinsurance

c.

Surplus reinsurance

d.

Stop loss reinsurance

Discuss
Answer: (a).Financial reinsurance Explanation:The exception to the traditional concept of "follow the fortunes" in reinsurance is financial reinsurance. In financial reinsurance, the reinsurer follows the ceding insurer's business fortunes in its entirety, rather than just following the terms and conditions of the original insurance contract.
Q105.
What is the purpose of the "Net Retained Lines" clause in reinsurance?

a.

To prioritize other reinsurances over the net account

b.

To protect the reinsurer's financial interests

c.

To limit the ceding insurer's retention amount

d.

To exclude certain risks from reinsurance coverage

Discuss
Answer: (a).To prioritize other reinsurances over the net account Explanation:The "Net Retained Lines" clause allows the ceding insurer to effect other reinsurances in priority, specifically to protect the net account. It ensures that additional treaty coverage is in place after proportional treaty or facultative cessations.
Q106.
What is typically included in the "Net Retained Lines" clause?

a.

Insolvency clause

b.

Gross account coverage

c.

Quota Share treaty

d.

Common account protection

Discuss
Answer: (a).Insolvency clause Explanation:The "Net Retained Lines" clause typically includes the insolvency clause. This clause addresses the situation where the ceding insurer is unable to collect amounts due from other reinsurers, excluding the Quota Share reinsurers, whether due to insolvency or other reasons.
Q107.
Under the "Net Retained Lines" clause, which portion of insurance or reinsurance does the agreement protect?

a.

Portion retained net for the ceding insurer's own account combined with Quota Share cessions

b.

Portion transferred to other reinsurers

c.

Portion retained for facultative cessations

d.

Portion covered by the gross account treaty

Discuss
Answer: (a).Portion retained net for the ceding insurer's own account combined with Quota Share cessions Explanation:The "Net Retained Lines" clause states that the reinsurance agreement shall only protect the portion of any insurance or reinsurance that the ceding insurer retains net for its own account, combined with cessions made to its Quota Share treaty.
Q108.
In what circumstances can the "Net Retained Lines" clause be omitted from a treaty?

a.

When the ceding insurer's retention amount is significant

b.

When the treaty covers the reinsured's gross account

c.

When facultative cessations are utilized extensively

d.

When the reinsurer's liability needs to be increased

Discuss
Answer: (b).When the treaty covers the reinsured's gross account Explanation:The "Net Retained Lines" clause is normally omitted from a treaty when the treaty covers the reinsured's gross account. In such cases, there is no need for separate protection of the net account, as the coverage operates for the entire account.
Q109.
What is the purpose of the insolvency clause included in the "Net Retained Lines" clause?

a.

To protect the reinsurer from financial losses incurred by the ceding insurer's insolvency

b.

To exempt the reinsurer from liability in case of the ceding insurer's insolvency

c.

To ensure the ceding insurer's ability to collect amounts due from other reinsurers

d.

To define the net retention amount for the ceding insurer

Discuss
Answer: (a).To protect the reinsurer from financial losses incurred by the ceding insurer's insolvency Explanation:The insolvency clause included in the "Net Retained Lines" clause protects the reinsurer from financial losses resulting from the insolvency of other reinsurers. It ensures that the reinsurer's liability is not increased due to the inability of the ceding insurer to collect from such insolvent reinsurers.
Q110.
What is the "ground up loss" in the context of reinsurance?

a.

The amount of the ceding insurer's loss eligible for recovery

b.

The amount of the insurance loss before deductibles and salvage

c.

The final determined net loss after deducting all recoveries

d.

The expenses of litigation and loss expenses of the insurer

Discuss
Answer: (b).The amount of the insurance loss before deductibles and salvage Explanation:The "ground up loss" refers to the amount of the insurance loss before the application of deductibles and salvage. It represents the total loss amount without considering any deductions or recoveries.
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