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 7 of 10

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Q61.
In surplus reinsurance, a ceding insurer’s retention is known as ___________.

a.

Surplus limit

b.

Line

c.

PML

d.

Quota share

Discuss
Answer: (b).Line Explanation:In surplus reinsurance, the original insurer (i.e., the ceding insurer) decides what part of the original insurance he wishes to retain for his own account and reinsures (cedes) the balance with a reinsurer. The ceding insurer's retention is known as the "line." It represents the maximum amount of risk that the ceding insurer is willing to retain for its own account. The line is usually expressed as a monetary value or as a percentage of the sum insured. The reinsurer then agrees to cover any losses that exceed the ceding insurer's retention (i.e., the line). The other options listed are not related to the concept of "line" in surplus reinsurance.
Q62.
In which of the following methods does the percentage of retained sum insured vary for different limits of sums insured and reduce with increase in the limit of sum insured?

a.

Proportional Reinsurance

b.

Surplus Reinsurance

c.

Quota share reinsurance

d.

Variable quota share reinsurance

Discuss
Answer: (d).Variable quota share reinsurance Explanation:In variable quota share reinsurance, the percentage of retained sum insured varies for different limits of sums insured and reduces with an increase in the limit of sum insured. This means that for higher sums insured, the ceding insurer retains a lower percentage of the sum insured and cedes a higher percentage to the reinsurer. This method allows the ceding insurer to reduce its retention on larger risks while retaining a higher percentage on smaller risks. In proportional reinsurance, the reinsurer shares the liabilities of the insurer along with the sum assured, premiums, and claims in the same proportion as per the agreement in the treaty. The percentage of retained sum insured remains constant irrespective of the limit of sum insured. In surplus reinsurance, the original insurer (i.e. the ceding insurer) decides what part of the original insurance he wishes to retain for his own account and reinsures (cedes) the balance with a reinsurer.
Q63.
Which of the following details are not included in a list of bordereaux?

a.

Name of insured

b.

Territorial scope

c.

Class of risk

d.

Ceding insurer’s retention

Discuss
Answer: (b).Territorial scope Explanation:Details of territorial scope are not included in the list of bordereaux.
Q64.
In the Treaty, as a ‘document of agreement’, which of the following countries are normally excluded while listing territorial scope?

a.

UK

b.

Canada

c.

Australia

d.

South Africa

Discuss
Answer: (b).Canada Explanation:In the Treaty, as a ‘document of agreement’, Canada is usually excluded while listing territorial scope because of the different laws and insurance practices prevailing in the country.
Q65.
Which of the following is incorrect with respect to reinsurance premium?

a.

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

b.

The percentage paid to the reinsurer(s) is the same as the percentage of the sum insured ceded by the ceding insurer.

c.

The premiums for any risks excluded from the treaty and return premiums due under cancelled policies are not included in the reinsurance premium.

d.

Commissions paid by the ceding insurer to agents and brokers are deducted from the reinsurance premium.

Discuss
Answer: (d).Commissions paid by the ceding insurer to agents and brokers are deducted from the reinsurance premium. Explanation:Commissions paid by the ceding insurer to agents and brokers are not deducted from the reinsurance premium. Hence, this option is incorrect.
Q66.
Which of the following methods can assist in improving combined ratio?What is proportional reinsurance?

a.

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

b.

Quota share reinsuranceWhen the reinsurer only shares the liabilities of the insurer for premiums and claims.

c.

Facultative obligatory treatyWhen the reinsurer only shares the liabilities of the insurer for claims.

d.

Proportional reinsurance, if carefully structuredNone of the above.

Discuss
Answer: (b).Proportional reinsurance, if carefully structuredWhen the reinsurer shares the liabilities of the insurer along with sum insured, premiums and claims in the same proportion as per agreement in the treaty. Explanation:Proportional methods, if carefully structured, can assist in improving combined ratio over a period of time.Proportional reinsurance is when the reinsurer shares the liabilities of the insurer along with sum insured, premiums, and claims in the same proportion as per agreement in the treaty.
Q67.
What are the two types of proportional reinsurance?

a.

Surplus reinsurance and quota share reinsurance.

b.

Retrocession and treaty reinsurance.

c.

Facultative and obligatory treaty reinsurance.

d.

None of the above.

Discuss
Answer: (a).Surplus reinsurance and quota share reinsurance. Explanation:The two types of proportional reinsurance are surplus reinsurance and quota share reinsurance.
Q68.
What is surplus reinsurance?

a.

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

b.

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

c.

When the insurer retains all of the original insurance and the reinsurer only shares the liabilities of the insurer for premiums and claims.

d.

None of the above.

Discuss
Answer: (a).When the reinsurer decides what part of the original insurance he wishes to retain for his own account and reinsures (cedes) the balance with a reinsurer. Explanation:Surplus reinsurance is when the reinsurer decides what part of the original insurance he wishes to retain for his own account and reinsures (cedes) the balance with a reinsurer.
Q69.
What is the ceding insurer's retention in surplus reinsurance?

a.

The maximum limit which the ceding insurer will retain, but may also actually retain a lesser amount as commensurate to risk exposure.

b.

The limit of liability which he wishes to retain on any one risk or class of risks.

c.

The percentage of retention and surplus were 10% and 90%, respectively.

d.

None of the above.

Discuss
Answer: (b).The limit of liability which he wishes to retain on any one risk or class of risks. Explanation:The ceding insurer's retention in surplus reinsurance is the limit of liability which he wishes to retain on any one risk or class of risks.
Q70.
How are the limits of surplus stated?

a.

Sum insured or probable maximum loss (PML).

b.

Retrocession or treaty reinsurance.

c.

Facultative or obligatory treaty reinsurance.

d.

None of the above.

Discuss
Answer: (a).Sum insured or probable maximum loss (PML). Explanation:The limits of surplus can be stated in two ways: sum insured or probable maximum loss (PML).
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