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.
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.
Q12.
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.
Q13.
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.
Q14.
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.
Q15.
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.
Q16.
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.
Q17.
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.
Q18.
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.
Q19.
Which of the following is NOT included in the reinsurance premium?

a.

Premiums for any risks excluded from the treaty

b.

Commissions paid by the ceding insurer to agents and brokers

c.

Return premiums due under cancelled policies

d.

All of the above are not included in the reinsurance premium

Discuss
Answer: (d).All of the above are not included in the reinsurance premium Explanation:The premiums for any risks excluded from the treaty and return premiums due under cancelled policies are not included in the reinsurance premium. Commissions paid by the ceding insurer to agents and brokers are also not deducted from the reinsurance premium.
Q20.
What is ceding commission?

a.

The commission paid by the reinsurer to the ceding insurer

b.

The commission paid by the ceding insurer to agents and brokers

c.

The commission paid by the ceding insurer to the reinsurer to compensate for original commissions and other expenses

d.

The commission paid by the reinsurer to the ceding insurer to compensate for acquisition cost

Discuss
Answer: (c).The commission paid by the ceding insurer to the reinsurer to compensate for original commissions and other expenses Explanation:The reinsurer agrees a commission by way of percentage of reinsurance premium given to him, known as ceding commission, to the ceding insurer to compensate for his original commissions and brokerages, acquisition cost, costs of keeping the business on the books, and administration expenses.
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