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.

Note: Each of the following question comes with multiple answer choices. Select the most appropriate option and test your understanding of Methods of Reinsurance I. You can click on an option to test your knowledge before viewing the solution for a MCQ. Happy learning!

So, are you ready to put your Methods of Reinsurance I knowledge to the test? Let's get started with our carefully curated MCQs!

Methods of Reinsurance I MCQs | Page 3 of 10

Discover more Topics under IC85 Reinsurance Management

Q21.
What are the two types of proportional reinsurance?

a.

Surplus and quota share reinsurance.

b.

Facultative and treaty reinsurance.

c.

Retrocession and obligatory reinsurance.

d.

Catastrophic and excess of loss reinsurance.

Discuss
Answer: (a).Surplus and quota share reinsurance. Explanation:The two types of proportional reinsurance are surplus reinsurance and quota share reinsurance.
Q22.
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.
Q23.
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.
Q24.
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.
Q25.
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.
Q26.
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.
Q27.
What is ceding commission?How is the ceding commission calculated?

a.

The commission paid by the reinsurer to the ceding insurerOn the original premium paid by the insured

b.

The commission paid by the ceding insurer to the reinsurerOn the reinsurance premium ceded by the ceding insurer

c.

The commission paid by the ceding insurer to agents and brokersOn the sum insured ceded by the ceding insurer

d.

The commission paid by the reinsurer to agents and brokersOn the earned premium for the treaty year

Discuss
Answer: (b).The commission paid by the ceding insurer to the reinsurerOn the reinsurance premium ceded by the ceding insurer Explanation:The reinsurer agrees a commission by way of a percentage of the 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.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.
Q28.
What is surplus reinsurance?

a.

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.

b.

The reinsurer covers only a specific type of risk.

c.

The reinsurer provides coverage for all risks falling within the scope of the agreement.

d.

The reinsurer covers the entire liability of the insurer.

Discuss
Answer: (a).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.
Q29.
How are premiums and losses shared in surplus reinsurance?

a.

In the proportion that the ceding insurer’s retention and the reinsurer’s share bear to the sum insured of the original insurance.

b.

Equally between the ceding insurer and the reinsurer.

c.

Based on the amount of premiums paid by the ceding insurer.

d.

Based on the amount of losses incurred by the reinsurer.

Discuss
Answer: (a).In the proportion that the ceding insurer’s retention and the reinsurer’s share bear to the sum insured of the original insurance. Explanation:In surplus reinsurance, premiums and losses are shared in the proportion that the ceding insurer’s retention and the reinsurer’s share bear to the sum insured of the original insurance.
Q30.
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.
Page 3 of 10