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 3 of 10

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Q21.
What is quota share reinsurance?

a.

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

b.

A type of excess of loss reinsurance where the reinsurer covers losses in excess of a predetermined retention level.

c.

A type of facultative reinsurance where the reinsurer assesses each risk on an individual basis.

d.

None of the above.

Discuss
Answer: (a).A type of proportional reinsurance where the reinsurer assumes an agreed percentage of each risk and shares all premiums and losses accordingly with the reinsured. Explanation:Quota share reinsurance can be defined as a type of proportional reinsurance where the reinsurer assumes an agreed percentage of each risk and shares all premiums and losses accordingly with the reinsured.
Q22.
How is the percentage of retention determined in fixed quota share reinsurance?

a.

It varies based on the underwriter's judgement.

b.

It is determined as part of the reinsurance program design.

c.

It is calculated based on the ceding insurer's profitability.

d.

None of the above.

Discuss
Answer: (b).It is determined as part of the reinsurance program design. Explanation:The percentage of retention in fixed quota share reinsurance is determined as part of the reinsurance program design.
Q23.
Why are quota share treaties usually more profitable to reinsurers?

a.

They participate in each and every risk on the same basis as the ceding insurer.

b.

The selection against them is avoided.

c.

They receive a higher rate of ceding commission.

d.

Both a and b

Discuss
Answer: (d).Both a and b Explanation:Quota share treaties are usually more profitable to reinsurers because they participate in each and every risk on the same basis as the ceding insurer and the selection against them, present in the surplus treaty, is avoided.
Q24.
Why is the quota share method adopted for short-term specialized requirements rather than as a long-term arrangement?

a.

It is more expensive for the ceding insurer.

b.

The ceding insurer passes a large share of his premium income (and his profit) to his reinsurer.

c.

It is less flexible than other reinsurance methods.

d.

None of the above.

Discuss
Answer: (b).The ceding insurer passes a large share of his premium income (and his profit) to his reinsurer. Explanation:The quota share method is adopted for short-term specialized requirements rather than as a long-term arrangement because the ceding insurer passes a large share of his premium income (and his profit) to his reinsurer, which is a high cost to the ceding insurer.
Q25.
When is quota share reinsurance protection typically used by a newly established insurer?

a.

When the insurer has a large amount of capital in relation to the insurance business they want to write.

b.

When the insurer is entering a new class of insurance business or a new territory.

c.

When the insurer has a large portfolio of a reasonable size.

d.

None of the above.

Discuss
Answer: (b).When the insurer is entering a new class of insurance business or a new territory. Explanation:Quota share reinsurance protection is typically used by a newly established insurer with low capital in relation to the insurance business they want to write until such time they have built up a portfolio of a reasonable size. It is also used by a ceding insurer entering a new class of insurance business or a new territory.
Q26.
In the surplus method, who decides the limit of liability which can be retained on any one risk or class of risk?

a.

Policyholder

b.

Intermediary

c.

Ceding insurer

d.

Reinsurer

Discuss
Answer: (c).Ceding insurer Explanation:In the surplus method, the limit of liability which can be retained on any one risk or class of risk is decided by the ceding insurer, who decides how much of the risk to retain and how much to cede to the reinsurer. The ceding insurer retains a certain percentage of the risk, known as the retention, and cedes the remainder to the reinsurer. This percentage can vary depending on the nature of the risk and the ceding insurer's appetite for risk. The reinsurer then assumes a corresponding percentage of the risk, and pays a corresponding percentage of the premium.
Q27.
What is a "line" in a surplus treaty?What happens if the ceding insurer decides to retain only Rs. 3,00,000 for a particular risk under a surplus treaty?

a.

The amount of premium paid by the ceding insurerThe amount ceded to the treaty for that particular risk cannot exceed Rs. 30,00,000

b.

The number of risks covered by the treatyThe ceding insurer must bear the balance for his own account

c.

The amount ceded to the surplus treaty equal to the ceding insurer's retentionThe reinsurer is required to pay the difference between the retention and the sum insured

d.

The amount ceded to the surplus treaty in excess of the ceding insurer's retentionThe ceding insurer must affect further reinsurance facultatively for that particular risk

Discuss
Answer: (b).The amount ceded to the surplus treaty equal to the ceding insurer's retentionThe amount ceded to the treaty for that particular risk cannot exceed Rs. 30,00,000 Explanation:In a surplus treaty, a "line" is equal to the ceding insurer's retention. For example, if a ceding insurer has a ten line surplus treaty on the basis of a maximum retention of Rs. 5,00,000, the capacity of the treaty to absorb liability over and above the retention would be Rs. 50,00,000 (10 x Rs. 5,00,000), and the ceding insurer would have automatic protection for policies having sums insured up to Rs. 55,00,000.If the ceding insurer decides to retain only Rs. 3,00,000 for a particular risk under a surplus treaty, the amount ceded to the treaty for that particular risk cannot exceed Rs. 30,00,000 (being 10 x Rs. 3,00,000).
Q28.
What is a "line" in a surplus treaty?

a.

The amount of premium paid by the ceding insurer

b.

The number of risks covered by the treaty

c.

The amount ceded to the surplus treaty equal to the ceding insurer's retention

d.

The amount ceded to the surplus treaty in excess of the ceding insurer's retention

Discuss
Answer: (c).The amount ceded to the surplus treaty equal to the ceding insurer's retention Explanation:In a surplus treaty, a "line" is equal to the ceding insurer's retention. For example, if a ceding insurer has a ten line surplus treaty on the basis of a maximum retention of Rs. 5,00,000, the capacity of the treaty to absorb liability over and above the retention would be Rs. 50,00,000 (10 x Rs. 5,00,000), and the ceding insurer would have automatic protection for policies having sums insured up to Rs. 55,00,000.
Q29.
What is a second surplus treaty?

a.

An agreement between the ceding insurer and reinsurer to accept risks

b.

A treaty that covers policies where the sums insured exceed the limits of the first treaty

c.

A treaty that provides coverage for risks that are not covered by the first treaty

d.

A treaty that is signed with a different reinsurer to provide additional protection

Discuss
Answer: (b).A treaty that covers policies where the sums insured exceed the limits of the first treaty Explanation:A second surplus treaty is a treaty that covers policies where the sums insured exceed the limits of the first treaty. When a ceding insurer has policies where the sums insured exceed the limits of the treaty, he has the option of either bearing the balance for his own account (in addition to its existing retention) or affecting further reinsurance either i. Facultatively: each risk individually or ii. By a further additional surplus treaty: automatic reinsurance.
Q30.
What options does a ceding insurer have when the sums insured on policies exceed the limits of a surplus treaty?

a.

Bear the balance for its own account.

b.

Facultatively affect each risk individually.

c.

Affect further reinsurance through a second surplus treaty.

d.

All of the above.

Discuss
Answer: (d).All of the above. Explanation:When the sums insured on policies exceed the limits of a surplus treaty, a ceding insurer has the option of bearing the balance for its own account, facultatively affecting each risk individually, or affecting further reinsurance through a second surplus treaty, which is an automatic reinsurance agreement.
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