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 5 of 10

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Q41.
_________________ is a general practice under surplus treaties where the ceding insurer provides the reinsurers with a list detailing the risks ceded to the treaty.

a.

Ceding commission

b.

Bordereaux

c.

Ceding insurers retention

d.

Cessation

Discuss
Answer: (b).Bordereaux Explanation:Under surplus treaties, the ceding insurer provides the reinsurer with a list detailing the risks ceded to the treaty. This list is called a bordereau, and it contains information on the insured risks, such as the name and address of the insured, the sum insured, the premium charged, and the date of the policy. The reinsurer uses this information to assess the risks and calculate their share of the premium and the liability. The bordereau also enables the reinsurer to monitor the performance of the treaty and to identify any trends or issues that may arise.
Q42.
What is the purpose of a limit in a reinsurance treaty?

a.

To ensure the ceding insurer cannot accept inferior risk

b.

To ensure the reinsurer cannot accept more risk than agreed upon

c.

To limit the total amount of risk that can be ceded to the reinsurer

d.

To limit the amount of premium the ceding insurer has to pay to the reinsurer

Discuss
Answer: (c).To limit the total amount of risk that can be ceded to the reinsurer Explanation:A limit in a reinsurance treaty sets a cap on the amount of risk that can be ceded to the reinsurer, protecting them from excessive risk exposure.
Q43.
What is a quota share treaty?

a.

A treaty where the reinsurer accepts a portion of each risk in the portfolio

b.

A treaty where the ceding insurer retains a certain percentage of each risk in the portfolio

c.

A treaty where the reinsurer accepts only surplus risks

d.

A treaty where the ceding insurer agrees to pay a fixed commission to the reinsurer

Discuss
Answer: (a).A treaty where the reinsurer accepts a portion of each risk in the portfolio Explanation:In a quota share treaty, the reinsurer accepts a fixed percentage of each risk in the portfolio.
Q44.
What is a surplus treaty?

a.

A treaty where the reinsurer accepts a portion of each risk in the portfolio

b.

A treaty where the ceding insurer retains a certain percentage of each risk in the portfolio

c.

A treaty where the reinsurer accepts only surplus risks

d.

A treaty where the ceding insurer agrees to pay a fixed commission to the reinsurer

Discuss
Answer: (c).A treaty where the reinsurer accepts only surplus risks Explanation:In a surplus treaty, the reinsurer accepts only risks that exceed a certain amount, usually the ceding insurer's retention under the treaty.
Q45.
Can quota share and surplus methods be used together in a reinsurance treaty?

a.

Yes, they are often used in combination to protect a particular class of insurance business

b.

No, they are mutually exclusive and cannot be combined in a single treaty

c.

Only in certain countries or jurisdictions

d.

It depends on the size and nature of the risks being insured

Discuss
Answer: (a).Yes, they are often used in combination to protect a particular class of insurance business Explanation:Quota share and surplus methods can be used in combination to provide further protection to a particular class of insurance business.
Q46.
What is the difference between net and gross lines in surplus treaty agreements?

a.

Net lines are based on the ceding insurer's retention under the quota share treaty, while gross lines are based on the entire underlying quota share treaty limit.

b.

Net lines are based on the entire underlying quota share treaty limit, while gross lines are based on the ceding insurer's retention under the quota share treaty.

c.

Net lines and gross lines are the same thing and have no difference.

d.

Net lines are the total amount of premium ceded to the reinsurer, while gross lines are the total amount of premium retained by the ceding insurer.

Discuss
Answer: (a).Net lines are based on the ceding insurer's retention under the quota share treaty, while gross lines are based on the entire underlying quota share treaty limit. Explanation:Net lines are based on the ceding insurer's retention under the quota share treaty, while gross lines are based on the entire underlying quota share treaty limit. The difference between net and gross lines is significant and can affect the monetary limits of the treaty.
Q47.
In a combined quota share and surplus treaty, what is the purpose of the ceding insurer's retention under the quota share treaty?

a.

To ensure the reinsurer accepts only superior risks.

b.

To provide a maximum acceptance limit for the reinsurer.

c.

To establish the "line" on which the surplus treaty is based.

d.

To protect the ceding insurer from losses.

Discuss
Answer: (c).To establish the "line" on which the surplus treaty is based. Explanation:In a combined quota share and surplus treaty, the ceding insurer's retention under the quota share treaty becomes the "line" on which the surplus treaty is based. The ceding insurer cannot keep two retentions, one for each treaty.
Q48.
When arranging a surplus treaty agreement in conjunction with a quota share treaty, why is it important to determine whether the surplus treaty is based on net or gross lines?

a.

The difference in monetary limits can be significant.

b.

The ceding insurer may not be able to retain any risks for its own account.

c.

The reinsurer may not be willing to accept inferior risks.

d.

The surplus treaty may be terminated before the end of the treaty period.

Discuss
Answer: (a).The difference in monetary limits can be significant. Explanation:The difference in monetary limits between net and gross lines can be significant, and it is important to determine which method is being used in order to avoid any confusion or misunderstandings.
Q49.
_____________ is an automatic reinsurance agreement whereby the ceding insurer is bound to part with a fixed percentage of every risk written by it.

a.

Proportional treaty

b.

Proportional facultative

c.

Surplus treaty

d.

Quota share treaty

Discuss
Answer: (d).Quota share treaty Explanation:In a Quota Share Treaty, the reinsurer agrees to accept a fixed percentage of the ceding insurer's entire portfolio of risks, usually on a pro rata basis. The ceding insurer is obligated to cede that percentage of every risk that it writes, and the reinsurer is obligated to accept it. For example, if the quota share is 50%, then the ceding insurer will cede 50% of every risk it writes to the reinsurer.
Q50.
What is proportional reinsurance?

a.

The reinsurer decides what part of the original insurance he wishes to retain for his own account and reinsures the balance with a reinsurer.

b.

The original insurer shares the liabilities of the reinsurer along with the sum assured, premiums, and claims in the same proportion as per the agreement in the treaty.

c.

The ceding insurer is bound to part with a fixed percentage of every risk written by it.

d.

The reinsurance premium paid by the ceding insurer to the reinsurer is a percentage of the original premium paid by the insured.

Discuss
Answer: (b).The original insurer shares the liabilities of the reinsurer along with the sum assured, premiums, and claims in the same proportion as per the agreement in the treaty. Explanation:In proportional reinsurance, the original insurer (i.e. the ceding insurer) shares the liabilities of the reinsurer along with the sum assured, premiums, and claims in the same proportion as per the agreement in the treaty.
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