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 6 of 10

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Q51.
What is a second surplus treaty in reinsurance?

a.

A treaty that receives risks where the original sum insured was smaller than the ceding insurer's retention.

b.

A treaty that is automatically accepted by the reinsurer for every risk that the ceding insurer intends to share.

c.

A treaty that receives risks where the original sum insured was larger than the ceding insurer's retention plus the amount allocated to the first surplus treaty.

d.

A treaty that is arranged after the ceding insurer has exhausted all other options for reinsurance.

Discuss
Answer: (c).A treaty that receives risks where the original sum insured was larger than the ceding insurer's retention plus the amount allocated to the first surplus treaty. Explanation:A second surplus treaty is a treaty that receives risks where the original sum insured was larger than the ceding insurer's retention plus the amount allocated to the first surplus treaty. It is an additional surplus treaty that is arranged when the ceding insurer has policies where the sums insured exceed the limits of the first surplus treaty.
Q52.
What is a surplus treaty?

a.

A treaty between two countries

b.

A treaty between two insurers

c.

A treaty between an insurer and a reinsurer for excess coverage

d.

A treaty between a policyholder and an insurer

Discuss
Answer: (c).A treaty between an insurer and a reinsurer for excess coverage Explanation:A surplus treaty as an agreement between a ceding insurer and a reinsurer for coverage of surplus risks.
Q53.
What is the method of cession?

a.

The process of negotiating a surplus treaty

b.

The process of calculating the amount of surplus to be ceded to a reinsurer

c.

The process of allocating surplus to multiple surplus treaties

d.

The process of selecting a reinsurer for a surplus treaty

Discuss
Answer: (c).The process of allocating surplus to multiple surplus treaties Explanation:The method of cession as the process of allocating surplus to multiple surplus treaties based on the size of the risk.
Q54.
What is the insurer's retention?

a.

The amount of premium paid by the policyholder

b.

The amount of risk retained by the insurer

c.

The amount of surplus ceded to the reinsurer

d.

The amount of loss covered by the policy

Discuss
Answer: (b).The amount of risk retained by the insurer Explanation:The insurer's retention as the maximum amount of risk that the insurer can retain for a particular policy.
Q55.
What is a risk-attaching basis?

a.

A basis under which reinsurance is provided for all claims from the ceding insurers underlying policies incepting during the period of the reinsurance contract

b.

A basis under which all claims occurring during the period of the treaty, irrespective of when the underlying policies incepted, are covered

c.

A basis under which the reinsurer only covers specific types of risks

d.

A basis under which the reinsurer only covers risks in a specific geographic area

Discuss
Answer: (a).A basis under which reinsurance is provided for all claims from the ceding insurers underlying policies incepting during the period of the reinsurance contract Explanation:A risk-attaching basis can be described as a basis under which reinsurance is provided for all claims from the ceding insurer's underlying policies incepting during the period of the reinsurance contract, regardless of when the claims occur.
Q56.
What is loss-occurring basis?

a.

A basis under which reinsurance is provided for all claims from the ceding insurer`s underlying policies incepting during the period of the reinsurance contract

b.

A basis under which all claims occurring during the period of the treaty, irrespective of when the underlying policies incepted, are covered

c.

A basis under which the reinsurer only covers specific types of risks

d.

A basis under which the reinsurer only covers risks in a specific geographic area

Discuss
Answer: (b).A basis under which all claims occurring during the period of the treaty, irrespective of when the underlying policies incepted, are covered Explanation:A loss-occurring basis can be described as a basis under which all claims occurring during the period of the treaty, irrespective of when the underlying policies incepted, are covered.
Q57.
What is the purpose of the treaty arrangement between ceding insurer and reinsurer?

a.

To cover all risks within the scope of the treaty

b.

To cover surplus only from specified risks within the scope of the treaty

c.

To provide primary insurance coverage to the insured

d.

To provide excess insurance coverage to the insured

Discuss
Answer: (b).To cover surplus only from specified risks within the scope of the treaty Explanation:The treaty arrangement between ceding insurer and reinsurer is designed to cover surplus only from specified risks within the scope of the treaty.
Q58.
What is included in the treaty as a document of agreement?

a.

A list of all classes of business transacted by the ceding insurer

b.

A list of classes of business covered by the treaty

c.

A list of all claims covered by the treaty

d.

A list of all claims not covered by the treaty

Discuss
Answer: (b).A list of classes of business covered by the treaty Explanation:The treaty as a document of agreement will contain a description or list of classes of business covered, such as burglary insurances or contractors all risks.
Q59.
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.
Q60.
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.
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