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 13 of 19

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Q121.
How are products liability losses treated in excess of loss reinsurances?

a.

Each individual claim is considered a separate occurrence

b.

Claims are aggregated based on the time of occurrence

c.

Claims are aggregated based on the location of the incident

d.

Claims arising from a faulty batch of a product are considered one occurrence

Discuss
Answer: (d).Claims arising from a faulty batch of a product are considered one occurrence Explanation:In excess of loss reinsurances for products liability losses, claims arising from the manufacture or distribution of one faulty batch or lot of a product are regarded as one occurrence. This means that all claims resulting from a specific batch of a product are treated as a single occurrence for the purpose of reinsurance.
Q122.
How are fidelity losses treated in excess of loss reinsurances?

a.

Each act of embezzlement is considered a separate occurrence

b.

Losses are aggregated based on the number of individuals involved

c.

Losses are aggregated based on the time of discovery

d.

Each policy period is considered a separate occurrence

Discuss
Answer: (a).Each act of embezzlement is considered a separate occurrence Explanation:In excess of loss reinsurances for fidelity losses, each act of embezzlement is typically considered a separate occurrence. This means that independent acts of embezzlement would be regarded as separate losses for the purpose of reinsurance, even if they occur within the same policy period or involve multiple individuals.
Q123.
In reinsurance agreements, what happens to the limit of cover if a portion of it is reduced due to the settlement of a loss?

a.

The limit of cover remains unchanged

b.

The limit of cover is permanently reduced

c.

The limit of cover is automatically reinstated

d.

The limit of cover is adjusted based on the settlement amount

Discuss
Answer: (c).The limit of cover is automatically reinstated Explanation:In the event of a portion of the limit of cover being reduced by the settlement of a loss, the amount of the limit of cover that was reduced will be automatically reinstated. This means that the coverage limit will be restored to its original level from the time of the commencement of the loss occurrence until the expiry of the agreement.
Q124.
What is typically charged for subsequent reinstatements of the coverage limit?

a.

No additional premium is charged

b.

A fixed premium is charged for each reinstatement

c.

A prorata additional premium is charged for each reinstatement

d.

The premium is adjusted based on the extent of the reinstatement

Discuss
Answer: (c).A prorata additional premium is charged for each reinstatement Explanation:After the first free reinstatement, subsequent reinstatements of the coverage limit are usually subject to a prorata additional premium. This means that for each additional reinstatement, a premium amount proportional to the coverage limit being reinstated is charged.
Q125.
What does the PML excess clause aim to address in reinsurance agreements?

a.

Errors in estimating the probable maximum loss

b.

Errors in calculating the premium amount

c.

Discrepancies in the coverage limit

d.

Disputes between the direct insurer and the reinsurer

Discuss
Answer: (a).Errors in estimating the probable maximum loss Explanation:The PML excess clause is incorporated in reinsurance agreements to address errors in estimating the probable maximum loss. When reinsurance is based on the probable maximum loss, if the estimate goes wrong and the actual loss exceeds the estimated PML, it can have adverse effects on both the retained loss of the reinsured and the proportional share of the loss to reinsurers. The clause limits the additional liability of the reinsurer to a specified percentage of the amount that would have resulted if the PML had not been exceeded.
Q126.
In the reinstatement clause of a reinsurance agreement, what is the purpose of the provision regarding the extent of reinstatement?

a.

To determine the number of reinstatements allowed

b.

To specify the coverage limit to be reinstated

c.

To calculate the additional premium for reinstatements

d.

To define the period of time for which the reinstatement applies

Discuss
Answer: (b).To specify the coverage limit to be reinstated Explanation:The provision regarding the extent of reinstatement in the reinstatement clause of a reinsurance agreement specifies the coverage limit that will be reinstated. It determines the amount of the limit of cover that was reduced due to a loss and will be automatically restored.
Q127.
Under the PML excess clause, what is the limit of additional liability imposed on the reinsurer if the estimated probable maximum loss (PML) is exceeded?

a.

25% of the excess amount

b.

50% of the excess amount

c.

75% of the excess amount

d.

100% of the excess amount

Discuss
Answer: (b).50% of the excess amount Explanation:According to the PML excess clause, if the estimated probable maximum loss (PML) is exceeded in the event of a loss, the additional liability to be borne by the reinsurer is limited to 50% of the amount that would have resulted if the PML had not been exceeded. This clause aims to protect the reinsurer in case of errors in estimating the PML.
Q128.
What happens if the application of the PML excess clause leads to different shares in a loss for the direct insurer and the reinsurer?

a.

The reinsurer retains the entire loss amount

b.

The direct insurer reimburses the reinsurer for the difference

c.

The reinsurer reimburses an appropriate share of the original premium to the direct insurer

d.

The direct insurer and the reinsurer renegotiate their shares in the loss

Discuss
Answer: (c).The reinsurer reimburses an appropriate share of the original premium to the direct insurer Explanation:If the application of the PML excess clause results in the direct insurer and the reinsurer having different shares in a loss compared to what they would have had without the clause, the reinsurer is required to reimburse an appropriate share of the original premium to the direct insurer. This ensures a fair distribution of the financial impact of the loss between the parties involved.
Q129.
Which provision in a reinsurance agreement overrides other terms and conditions, including the errors clause?

a.

The reinstatement provision

b.

The PML excess clause

c.

The area limitation clause

d.

The ultimate net loss provision

Discuss
Answer: (b).The PML excess clause Explanation:The PML excess clause overrides other terms and conditions set forth in the reinsurance agreement, including the errors clause. It establishes specific rules and limitations for the additional liability of the reinsurer in case the estimated probable maximum loss is exceeded, ensuring consistency in the treatment of such situations.
Q130.
In reinsurance agreements, what is the purpose of the extension of cover clause?

a.

To extend the coverage period of the reinsurance agreement

b.

To include losses that occur after the expiration of the reinsurance agreement

c.

To provide additional coverage for specific loss occurrences

d.

To terminate the reinsurance agreement during a loss occurrence

Discuss
Answer: (b).To include losses that occur after the expiration of the reinsurance agreement Explanation:The extension of cover clause in reinsurance agreements allows for the inclusion of losses that occur after the expiration of the reinsurance agreement. It ensures that the reinsurer remains responsible for the loss or damage as if it had occurred prior to the expiration of the agreement, provided that no part of the loss occurrence is claimed against any renewal of the agreement.
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