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 2 of 10

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Q11.
Which of the following statements is true about surplus reinsurance?

a.

The reinsurer assumes all the liabilities of the insurer

b.

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

c.

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

d.

The ceding insurer may cede risks of any agreed class of insurance which the reinsurer must accept if ceded

Discuss
Answer: (b).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.
Q12.
Which of the following methods can assist in improving combined ratio?

a.

Retrocession

b.

Quota share reinsurance

c.

Facultative obligatory treaty

d.

Proportional reinsurance, if carefully structured

Discuss
Answer: (d).Proportional reinsurance, if carefully structured Explanation:Proportional methods, if carefully structured, can assist in improving combined ratio over a period of time.
Q13.
Which of the following methods can assist in improving combined ratio?What is proportional reinsurance?

a.

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

b.

Quota share reinsuranceWhen the reinsurer only shares the liabilities of the insurer for premiums and claims.

c.

Facultative obligatory treatyWhen the reinsurer only shares the liabilities of the insurer for claims.

d.

Proportional reinsurance, if carefully structuredNone of the above.

Discuss
Answer: (b).Proportional reinsurance, if carefully structuredWhen the reinsurer shares the liabilities of the insurer along with sum insured, premiums and claims in the same proportion as per agreement in the treaty. Explanation:Proportional methods, if carefully structured, can assist in improving combined ratio over a period of time.Proportional reinsurance is when the reinsurer shares the liabilities of the insurer along with sum insured, premiums, and claims in the same proportion as per agreement in the treaty.
Q14.
What are the two types of proportional reinsurance?

a.

Surplus reinsurance and quota share reinsurance.

b.

Retrocession and treaty reinsurance.

c.

Facultative and obligatory treaty reinsurance.

d.

None of the above.

Discuss
Answer: (a).Surplus reinsurance and quota share reinsurance. Explanation:The two types of proportional reinsurance are surplus reinsurance and quota share reinsurance.
Q15.
What is surplus reinsurance?

a.

When the reinsurer decides what part of the original insurance he wishes to retain for his own account and reinsures (cedes) the balance with a reinsurer.

b.

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

c.

When the insurer retains all of the original insurance and the reinsurer only shares the liabilities of the insurer for premiums and claims.

d.

None of the above.

Discuss
Answer: (a).When the reinsurer decides what part of the original insurance he wishes to retain for his own account and reinsures (cedes) the balance with a reinsurer. Explanation:Surplus reinsurance is when the reinsurer decides what part of the original insurance he wishes to retain for his own account and reinsures (cedes) the balance with a reinsurer.
Q16.
What is the ceding insurer's retention in surplus reinsurance?

a.

The maximum limit which the ceding insurer will retain, but may also actually retain a lesser amount as commensurate to risk exposure.

b.

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

c.

The percentage of retention and surplus were 10% and 90%, respectively.

d.

None of the above.

Discuss
Answer: (b).The limit of liability which he wishes to retain on any one risk or class of risks. Explanation:The ceding insurer's retention in surplus reinsurance is the limit of liability which he wishes to retain on any one risk or class of risks.
Q17.
How are the limits of surplus stated?

a.

Sum insured or probable maximum loss (PML).

b.

Retrocession or treaty reinsurance.

c.

Facultative or obligatory treaty reinsurance.

d.

None of the above.

Discuss
Answer: (a).Sum insured or probable maximum loss (PML). Explanation:The limits of surplus can be stated in two ways: sum insured or probable maximum loss (PML).
Q18.
What is probable maximum loss (PML)?

a.

The maximum amount which the ceding insurer is prepared to retain for his own account.

b.

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

c.

An underwriter's estimate of the maximum amount of damage that would probably occur in the event of an accident & base his decisions on retentions and reinsurance on such an estimate.

d.

None of the above.

Discuss
Answer: (c).An underwriter's estimate of the maximum amount of damage that would probably occur in the event of an accident & base his decisions on retentions and reinsurance on such an estimate. Explanation:Probable maximum loss (PML) is an underwriter's estimate of the maximum amount of damage that would probably occur in the event of an accident & base his decisions on retentions and reinsurance on such an estimate.
Q19.
What is the benefit of using PML as a basis for surplus reinsurance?

a.

It reduces the insurer's need for surplus reinsurance protection.

b.

It increases the reinsurer's share of the surplus.

c.

It increases the insurer's share of the surplus.

d.

None of the above.

Discuss
Answer: (a).It reduces the insurer's need for surplus reinsurance protection. Explanation:The approach based on PML (Probable Maximum Loss) assists the ceding insurer to retain more premiums and reduce their need for surplus reinsurance protection. This means that the insurer can decide to retain a higher proportion of the risk and reinsure a lower proportion, which can lead to cost savings for the insurer.
Q20.
What is Quota Share Reinsurance?

a.

A type of non-proportional reinsurance in which the reinsurer pays a portion of the loss exceeding a certain amount.

b.

A type of proportional reinsurance in which the reinsurer assumes an agreed percentage of each risk and shares all premiums and losses accordingly with the reinsured.

c.

A type of facultative reinsurance in which the reinsurer assesses each risk separately.

d.

None of the above.

Discuss
Answer: (b).A type of proportional reinsurance in which the reinsurer assumes an agreed percentage of each risk and shares all premiums and losses accordingly with the reinsured. Explanation:Quota Share Reinsurance is a type of proportional reinsurance in which the reinsurer assumes an agreed percentage of each risk and shares all premiums and losses accordingly with the reinsured.
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