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 5 of 10

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Q41.
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.
Q42.
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.
Q43.
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.
Q44.
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.
Q45.
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.
Q46.
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.
Q47.
What is the quota share treaty?

a.

A treaty that puts in more level of exposure for lesser reinsurance premium ceded to reinsurers

b.

A treaty that assists for a higher ceding commission as compared to a surplus treaty

c.

A treaty that allows for a higher level of surplus, such as second and third surplus

d.

A treaty that has a lower ceding commission as compared with the first surplus treaty

Discuss
Answer: (a).A treaty that puts in more level of exposure for lesser reinsurance premium ceded to reinsurers Explanation: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.
Q48.
What is profit commission?

a.

A further commission agreed by the reinsurer to the ceding insurer if the results under a treaty are profitable

b.

A commission paid by the ceding insurer to the reinsurer if the results under a treaty are profitable

c.

A commission paid by the ceding insurer to agents and brokers

d.

A commission paid by the reinsurer to agents and brokers

Discuss
Answer: (a).A further commission agreed by the reinsurer to the ceding insurer if the results under a treaty are profitable Explanation:Where the results under a treaty are profitable, the reinsurer may agree a further commission called a profit commission. By this method, a percentage of the profits of the treaty for the treaty year are returned to the ceding insurer.
Q49.
What is the formula to calculate profit to the treaty?

a.

Profit to the Treaty = Earned premium - Incurred claims - Ceding commission

b.

Profit to the Treaty = Earned premium + Incurred claims - Ceding commission

c.

Profit to the Treaty = Earned premium - Incurred claims + Ceding commission

d.

Profit to the Treaty = Earned premium + Incurred claims + Ceding commission

Discuss
Answer: (a).Profit to the Treaty = Earned premium - Incurred claims - Ceding commission Explanation:The formula to calculate profit to the treaty is Profit to the Treaty = Earned premium - Incurred claims - Ceding commission.
Q50.
When does the reinsurer's liability begin under a proportional treaty?

a.

Simultaneously with that of the ceding insurer

b.

After the ceding insurer accepts the risk

c.

At the end of the ceding insurer's financial year

d.

Only for policies issued after the inception of the treaty

Discuss
Answer: (a).Simultaneously with that of the ceding insurer Explanation:Under a proportional treaty, the reinsurer's liability commences simultaneously with that of the ceding insurer.
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