Methods of Reinsurance I MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on Methods of Reinsurance I, 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 Methods of Reinsurance I 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 Methods of Reinsurance I mcq questions that explore various aspects of Methods of Reinsurance I problems. Each MCQ is crafted to challenge your understanding of Methods of Reinsurance I 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 Methods of Reinsurance I MCQs are your pathway to success in mastering this essential IC85 Reinsurance Management topic.

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Methods of Reinsurance I MCQs | Page 1 of 10

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Q1.
What is listed in the treaty regarding territorial scope?

a.

The specific locations covered by the treaty

b.

The countries and regions to which the treaty applies

c.

The legal systems and insurance practices prevailing in the countries covered

d.

The types of business transacted in the countries covered

Discuss
Answer: (b).The countries and regions to which the treaty applies Explanation:The areas of the world to which the treaty applies are listed. Where treaties are on a ‘worldwide’ basis, the United States of America and Canada exposures are usually excluded because of the different legal systems and insurance practices prevailing in those countries.
Q2.
Why would a ceding insurer transacting business in the USA negotiate a separate treaty for such business?

a.

Because the legal systems and insurance practices in the USA are the same as in other countries covered by the treaty

b.

Because the nature of business involved in the USA is different from that covered by the treaty

c.

Because the USA is not included in the territorial scope of the treaty

d.

Because marine and aviation treaties usually have a ‘worldwide’ scope

Discuss
Answer: (c).Because the USA is not included in the territorial scope of the treaty Explanation:The United States of America and Canada exposures are usually excluded from treaties with worldwide scope because of the different legal systems and insurance practices prevailing in those countries. Therefore, a ceding insurer transacting business in the USA would negotiate a separate treaty for such business.
Q3.
What is proportional reinsurance?

a.

A type of reinsurance where the reinsurer shares the liabilities of the insurer in the same proportion as agreed in the treaty.

b.

A type of reinsurance where the reinsurer covers only a specific type of risk.

c.

A type of reinsurance where the reinsurer provides coverage for all risks falling within the scope of the agreement.

d.

A type of reinsurance where the reinsurer shares only the premiums of the insurer, not the liabilities.

Discuss
Answer: (a).A type of reinsurance where the reinsurer shares the liabilities of the insurer in the same proportion as agreed in the treaty. Explanation:Proportional reinsurance is a type of reinsurance where the reinsurer shares the liabilities of the insurer in the same proportion as agreed in the treaty, along with sum insured, premiums, and claims.
Q4.
What are the two types of proportional reinsurance?

a.

Surplus and quota share reinsurance.

b.

Facultative and treaty reinsurance.

c.

Retrocession and obligatory reinsurance.

d.

Catastrophic and excess of loss reinsurance.

Discuss
Answer: (a).Surplus and quota share reinsurance. Explanation:The two types of proportional reinsurance are surplus reinsurance and quota share reinsurance.
Q5.
What is surplus reinsurance?

a.

The original insurer decides what part of the original insurance he wishes to retain for his own account and reinsures the balance with a reinsurer.

b.

The reinsurer covers only a specific type of risk.

c.

The reinsurer provides coverage for all risks falling within the scope of the agreement.

d.

The reinsurer covers the entire liability of the insurer.

Discuss
Answer: (a).The original insurer decides what part of the original insurance he wishes to retain for his own account and reinsures the balance with a reinsurer. Explanation:In surplus reinsurance, the original insurer decides what part of the original insurance he wishes to retain for his own account and reinsures (cedes) the balance with a reinsurer.
Q6.
How are premiums and losses shared in surplus reinsurance?

a.

In the proportion that the ceding insurer’s retention and the reinsurer’s share bear to the sum insured of the original insurance.

b.

Equally between the ceding insurer and the reinsurer.

c.

Based on the amount of premiums paid by the ceding insurer.

d.

Based on the amount of losses incurred by the reinsurer.

Discuss
Answer: (a).In the proportion that the ceding insurer’s retention and the reinsurer’s share bear to the sum insured of the original insurance. Explanation:In surplus reinsurance, premiums and losses are shared in the proportion that the ceding insurer’s retention and the reinsurer’s share bear to the sum insured of the original insurance.
Q7.
What is the ceding insurer’s retention in surplus reinsurance?

a.

The limit of liability which the ceding insurer wishes to retain on any one risk or class of risks.

b.

The amount of premium paid by the ceding insurer.

c.

The amount of loss incurred by the ceding insurer.

d.

The maximum limit of liability for the reinsurer.

Discuss
Answer: (a).The limit of liability which the ceding insurer wishes to retain on any one risk or class of risks. Explanation:In surplus reinsurance, the ceding insurer’s retention is the limit of liability which the ceding insurer wishes to retain on any one risk or class of risks. This limit is decided by the ceding insurer.
Q8.
Which of the following describes proportional reinsurance?

a.

The reinsurer assumes all the liabilities of the insurer

b.

The reinsurer shares liabilities of the insurer along with sum insured, premiums, and claims in the same proportion as per agreement in the treaty

c.

The reinsurer accepts only a specific risk of a specific insured

d.

The reinsurer automatically accepts a certain liability for all risks falling within the scope of the agreement

Discuss
Answer: (b).The reinsurer shares liabilities of the insurer along with sum insured, premiums, and claims in the same proportion as per agreement in the treaty Explanation:Proportional reinsurance involves sharing the liabilities of the insurer with the reinsurer in the same proportion as per the agreement in the treaty.
Q9.
Which type of treaty usually has a ‘worldwide’ scope?

a.

Burglary insurances

b.

Contractors all risks

c.

Marine and aviation treaties

d.

Fire department insurances

Discuss
Answer: (c).Marine and aviation treaties Explanation:Because of the nature of business involved, marine and aviation treaties usually have a ‘worldwide’ scope.
Q10.
What is the difference between the risk-attaching basis and the loss-occurring basis?

a.

The risk-attaching basis covers all claims from the ceding insurer's underlying policies incepting during the period of the reinsurance contract, while the loss-occurring basis covers claims occurring after the expiration date of the treaty.

b.

The risk-attaching basis covers all claims occurring during the period of the treaty and the loss-occurring basis covers only claims from the ceding insurer's underlying policies incepting during the period of the reinsurance contract.

c.

The risk-attaching basis covers claims occurring after the expiration date of the treaty, while the loss-occurring basis covers only claims from the ceding insurer's underlying policies incepting outside the period of the reinsurance treaty.

d.

The risk-attaching basis and the loss-occurring basis are the same and cover all claims from the ceding insurer's underlying policies incepting during the period of the reinsurance contract.

Discuss
Answer: (a).The risk-attaching basis covers all claims from the ceding insurer's underlying policies incepting during the period of the reinsurance contract, while the loss-occurring basis covers claims occurring after the expiration date of the treaty. Explanation:The risk-attaching basis covers all claims from the ceding insurer's underlying policies incepting during the period of the reinsurance contract, even if such claims occur after the expiration date of the treaty agreement. On the other hand, the loss-occurring basis covers all claims occurring during the period of the treaty, irrespective of when the underlying policies incepted. However, any claim occurring after the expiration date of the treaty is not covered under both bases.
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