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.

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Methods of Reinsurance I MCQs | Page 2 of 10

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Q11.
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.
Q12.
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.
Q13.
What are exclusions in a reinsurance treaty?

a.

A list of risks covered by the treaty

b.

A list of risks excluded from the treaty

c.

A list of risks that can be added to the treaty

d.

None of the above

Discuss
Answer: (b).A list of risks excluded from the treaty Explanation:Exclusions in a reinsurance treaty refer to a list of risks that the reinsurer will not accept from the ceding insurer.
Q14.
Why might a reinsurer exclude certain risks from a treaty?

a.

To protect the treaty result in their own interest

b.

To prevent the ceding insurer from writing risks in which they are not experienced

c.

Both a and b

d.

None of the above

Discuss
Answer: (c).Both a and b Explanation:A reinsurer may exclude risks or define the cover more clearly targeting to protect the treaty result in his own interest and thus prevent the ceding insurer from writing risks in which he is not experienced.
Q15.
Why might a reinsurer exclude certain risks from a treaty?What is a bordereaux?

a.

To protect the treaty result in their own interestA list detailing the risks ceded to the treaty

b.

To prevent the ceding insurer from writing risks in which they are not experiencedA list of risks excluded from the treaty

c.

Both a and bA list of risks that can be added to the treaty

d.

None of the aboveNone of the above

Discuss
Answer: (b).Both a and bA list detailing the risks ceded to the treaty Explanation:A reinsurer may exclude risks or define the cover more clearly targeting to protect the treaty result in his own interest and thus prevent the ceding insurer from writing risks in which he is not experienced.A bordereaux is a list provided by the ceding insurer to the reinsurer, detailing the risks ceded to the treaty.
Q16.
What information is typically included in a bordereaux?

a.

Name of insured, class of risk, sum insured, premium rate, ceding insurer’s retention, amount reinsured, and period of insurance

b.

Name of reinsured, class of risk, sum insured, premium rate, ceding insurer’s retention, amount reinsured, and period of insurance

c.

Name of insured, class of risk, sum insured, premium rate, reinsurer’s retention, amount reinsured, and period of insurance

d.

None of the above

Discuss
Answer: (a).Name of insured, class of risk, sum insured, premium rate, ceding insurer’s retention, amount reinsured, and period of insurance Explanation:A bordereaux typically includes the name of insured, class of risk, sum insured, premium rate, ceding insurer’s retention, amount reinsured, and period of insurance.
Q17.
How often is a bordereaux typically submitted to the reinsurer?

a.

Annually

b.

Monthly or quarterly

c.

Every six months

d.

It varies depending on the treaty

Discuss
Answer: (b).Monthly or quarterly Explanation:A bordereaux is typically submitted monthly or quarterly as agreed between the parties.
Q18.
Why might a reinsurer insist on a bordereaux for a newly established ceding insurer?

a.

To monitor the ceding insurer's use of the treaty

b.

To increase administrative efficiency

c.

To discourage the ceding insurer from writing certain types of risks

d.

None of the above

Discuss
Answer: (a).To monitor the ceding insurer's use of the treaty Explanation:Reinsurers tend to insist on bordereaux only if the treaty is with a newly established ceding insurer to enable the reinsurer to monitor the ceding insurer's use of the treaty.
Q19.
In what cases might a reinsurer need to effect reinsurance in respect of their acceptance?

a.

Specialized classes of insurance with a risk of accumulation

b.

When the surplus ceded is so large that the reinsurer himself may need to effect reinsurance in respect of his acceptance

c.

Both a and b

d.

None of the above

Discuss
Answer: (c).Both a and b Explanation:In cases where there is a risk of accumulation in specialized classes of insurance, or when the surplus ceded is so large that the reinsurer may need to effect reinsurance in respect of their acceptance, the reinsurer expects detailed advice to enable them to manage their own risk exposure. This suggests that both of these conditions could lead a reinsurer to need to effect reinsurance in respect of their acceptance.
Q20.
What is the reinsurance premium paid by the ceding insurer to the reinsurer(s) a percentage of?

a.

The commission paid by the ceding insurer to agents and brokers

b.

The sum insured ceded by the ceding insurer

c.

The return premiums due under cancelled policies

d.

The premiums for any risks excluded from the treaty

Discuss
Answer: (b).The sum insured ceded by the ceding insurer Explanation:The reinsurance premium paid by the ceding insurer to the reinsurer(s) is a percentage of the original premium paid by the insured. The percentage paid to the reinsurer(s) is the same as the percentage of the sum insured ceded by the ceding insurer.
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