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 3 of 10

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Q21.
How is the ceding commission calculated?

a.

By applying the agreed percentage to the ceded premium

b.

By applying the agreed percentage to the original premium paid by the insured

c.

By applying the agreed percentage to the reinsurance premium

d.

By applying the agreed percentage to the sum insured

Discuss
Answer: (a).By applying the agreed percentage to the ceded premium Explanation:The ceding commission is calculated on the ceded premium by applying the agreed percentage as set out in the treaty slip and agreed. This is incorporated in the treaty document.
Q22.
What is the factor that determines the level of ceding commission?

a.

The level of exposure in the treaty

b.

The negotiation between the ceding insurer & the reinsurers

c.

The type of treaty (quota share or surplus)

d.

Both b and c

Discuss
Answer: (d).Both b and c Explanation:The level of the ceding commission is determined through negotiation between the ceding insurer & the reinsurers, and it also depends on the type of treaty. A quota share treaty would assist for a higher ceding commission as compared to a surplus treaty as the latter puts in more level of exposure for lesser reinsurance premium ceded to reinsurers. The higher level of surplus, such as second and third surplus would have lower ceding commission as compared with the first surplus treaty due to a reduction in premium ceded to the higher surplus treaties even while keeping high level exposures to these surplus levels.
Q23.
What is the definition of reinsurance premium?

a.

The percentage paid to the reinsurer(s) for the sum insured ceded by the ceding insurer

b.

The premium paid by the reinsurer(s) for the sum insured ceded by the ceding insurer

c.

The premium paid by the insured to the ceding insurer for the sum insured

d.

The premium paid by the reinsurer(s) for the risks excluded from the treaty

Discuss
Answer: (a).The percentage paid to the reinsurer(s) for the sum insured ceded by the ceding insurer Explanation:The reinsurance premium is defined as the percentage paid to the reinsurer(s) for the sum insured ceded by the ceding insurer.
Q24.
Which premiums are not included in the reinsurance premium?

a.

Commissions paid by the ceding insurer to agents and brokers

b.

Premiums for any risks excluded from the treaty

c.

both a and b

d.

None of the above

Discuss
Answer: (c).both a and b Explanation:The premiums for any risks excluded from the treaty and commissions paid by the ceding insurer to agents and brokers are not included in the reinsurance premium.
Q25.
What is ceding commission?

a.

The commission paid by the ceding insurer to the reinsurer(s)

b.

The commission paid by the reinsurer(s) to the ceding insurer

c.

The premium paid by the ceding insurer to the reinsurer(s)

d.

The premium paid by the reinsurer(s) to the ceding insurer

Discuss
Answer: (a).The commission paid by the ceding insurer to the reinsurer(s) Explanation:Ceding commission is the commission paid by the reinsurer(s) to the ceding insurer to compensate for their original commissions and brokerages, acquisition cost, costs of keeping the business on the books, and administration expenses.
Q26.
How is the ceding commission calculated?

a.

By applying the agreed percentage on the ceded premium as set out in the treaty slip and agreed

b.

By applying the same percentage as the reinsurance premium on the original premium paid by the insured

c.

By deducting the original commissions and brokerages from the reinsurance premium

d.

By adding the acquisition cost and the costs of keeping the business on the books to the reinsurance premium

Discuss
Answer: (a).By applying the agreed percentage on the ceded premium as set out in the treaty slip and agreed Explanation:The ceding commission is calculated on the ceded premium by applying the agreed percentage as set out in the treaty slip and agreed. This is incorporated in the treaty document.
Q27.
What is the purpose of a profit commission?

a.

To increase the reinsurance premium paid by the ceding insurer

b.

To return a percentage of the profits of the treaty for the treaty year to the ceding insurer

c.

To reduce the ceding commission paid by the ceding insurer

d.

To decrease the level of surplus in the surplus treaty

Discuss
Answer: (b).To return a percentage of the profits of the treaty for the treaty year to the ceding insurer Explanation:The purpose of a profit commission is to return a percentage of the profits of the treaty for the treaty year to the ceding insurer. If the results under a treaty are profitable, the reinsurer may agree a further commission called a profit commission.
Q28.
What is ORC?

a.

Original reinsurance commission

b.

Overriding commission

c.

Operational risk charge

d.

None of the above

Discuss
Answer: (b).Overriding commission Explanation:ORC stands for overriding commission. In certain classes of insurance business, where reinsurance premiums are paid on a "net" basis, that is, less original commission, the reinsurer will only allow an overriding commission, ORC, to cover the ceding insurer's original costs of acquisition.
Q29.
What is the definition of reinsurance premium?

a.

A percentage of the original premium paid by the insured to the reinsurer

b.

The premium paid by the ceding insurer to the insured

c.

The premium paid by the reinsurer to the ceding insurer

d.

The premium paid by the insured to the ceding insurer

Discuss
Answer: (a).A percentage of the original premium paid by the insured to the reinsurer Explanation:The reinsurance premium is a percentage of the original premium paid by the insured to the reinsurer.
Q30.
What risks are excluded from the reinsurance premium?

a.

Any risks included in the treaty

b.

Any risks excluded from the treaty

c.

Any return premiums due under cancelled policies

d.

Commissions paid by the ceding insurer to agents and brokers

Discuss
Answer: (b).Any risks excluded from the treaty Explanation:The premiums for any risks excluded from the treaty and return premiums due under cancelled policies are not included in the reinsurance premium.
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