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 4 of 10

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Q31.
What is the benefit of using PML as a basis for surplus reinsurance?

a.

It reduces the insurer's need for surplus reinsurance protection.

b.

It increases the reinsurer's share of the surplus.

c.

It increases the insurer's share of the surplus.

d.

None of the above.

Discuss
Answer: (a).It reduces the insurer's need for surplus reinsurance protection. Explanation:The approach based on PML (Probable Maximum Loss) assists the ceding insurer to retain more premiums and reduce their need for surplus reinsurance protection. This means that the insurer can decide to retain a higher proportion of the risk and reinsure a lower proportion, which can lead to cost savings for the insurer.
Q32.
What is Quota Share Reinsurance?

a.

A type of non-proportional reinsurance in which the reinsurer pays a portion of the loss exceeding a certain amount.

b.

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

c.

A type of facultative reinsurance in which the reinsurer assesses each risk separately.

d.

None of the above.

Discuss
Answer: (b).A type of proportional reinsurance in which the reinsurer assumes an agreed percentage of each risk and shares all premiums and losses accordingly with the reinsured. Explanation:Quota Share Reinsurance is a type of proportional reinsurance in which the reinsurer assumes an agreed percentage of each risk and shares all premiums and losses accordingly with the reinsured.
Q33.
What is Fixed Quota Share Reinsurance?

a.

A type of proportional reinsurance in which the reinsurer assumes a fixed amount of each risk.

b.

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

c.

A type of non-proportional reinsurance in which the reinsurer pays a portion of the loss exceeding a certain amount.

d.

None of the above.

Discuss
Answer: (b).A type of proportional reinsurance in which the reinsurer assumes an agreed percentage of each risk and shares all premiums and losses accordingly with the reinsured. Explanation:Fixed Quota Share Reinsurance is a type of proportional reinsurance in which the reinsurer assumes an agreed percentage of each risk and shares all premiums and losses accordingly with the reinsured.
Q34.
How is the percentage of retention determined in Variable Quota Share Reinsurance?

a.

It remains the same for all limits of sums insured.

b.

It varies for different limits of sums insured and increases with an increase in the limit of sums insured.

c.

It varies for different limits of sums insured and reduces with an increase in the limit of sums insured.

d.

None of the above.

Discuss
Answer: (c).It varies for different limits of sums insured and reduces with an increase in the limit of sums insured. Explanation:In Variable Quota Share Reinsurance, the percentage of retention varies for different limits of sums insured and reduces with an increase in the limit of sums insured.
Q35.
How are premiums and claims shared in Fixed Quota Share Reinsurance?

a.

They are subject to different percentages for premiums and claims.

b.

They are subject to the same percentage for both premiums and claims.

c.

Premiums are subject to a fixed percentage, and claims are subject to a variable percentage.

d.

None of the above.

Discuss
Answer: (b).They are subject to the same percentage for both premiums and claims. Explanation:In Fixed Quota Share Reinsurance, premiums and claims are subject to the same percentage.
Q36.
How is Variable Quota Share Reinsurance graduated to align with the occupancy of risk?

a.

The percentage of retention is fixed for all risks.

b.

The percentage of retention is higher for higher occupancy risks.

c.

The percentage of retention is lower for higher occupancy risks.

d.

None of the above.

Discuss
Answer: (c).The percentage of retention is lower for higher occupancy risks. Explanation:In Variable Quota Share Reinsurance, the percentage of retention is graduated to align with the occupancy of risk, and it is lower for higher occupancy risks.
Q37.
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.
Q38.
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.
Q39.
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.
Q40.
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.
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