Methods of Reinsurance II MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on Methods of Reinsurance II, 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 II MCQs are designed to help you grasp the core concepts and excel in solving problems.

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Methods of Reinsurance II MCQs | Page 2 of 10

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Q11.
What type of loss exposures does per risk excess of loss reinsurance protect against?

a.

Liability claims

b.

Personal accident claims

c.

Property risks loss exposures

d.

Catastrophic events

Discuss
Answer: (c).Property risks loss exposures Explanation:Risk Excess of Loss (XL) reinsurance provides protection for the increased retention levels due to adverse underwriting results of proportional treaties and resultant shrinkage of proportional reinsurance capacities. This form of reinsurance is mainly used in protecting property risks loss exposures.
Q12.
What is the purpose of Working (Risk) Excess of Loss (XL) reinsurance?

a.

To limit losses that arise on the reinsured’s day-to-day operations

b.

To provide protection against number of losses that arise out of a single accident, occurrence or event

c.

To protect a reinsured against an accumulation or aggregation of losses arising from an identified event

d.

To provide protection against adverse underwriting results of proportional treaties

Discuss
Answer: (a).To limit losses that arise on the reinsured’s day-to-day operations Explanation:Working (Risk) Excess of Loss (XL) reinsurance is intended to limit losses that arise on the reinsured’s day-to-day operations. It caters to the reinsured’s need for protection against a number of losses that arise out of a single accident, occurrence or event.
Q13.
What is the purpose of Risk Excess of Loss reinsurance?

a.

To limit losses that arise on the reinsured’s day-to-day operations

b.

To provide protection against number of losses that arise out of a single accident, occurrence or event

c.

To protect a reinsured against an accumulation or aggregation of losses arising from an identified event

d.

To provide protection against adverse underwriting results of proportional treaties

Discuss
Answer: (d).To provide protection against adverse underwriting results of proportional treaties Explanation:Risk Excess of Loss reinsurance provides protection against adverse underwriting results of proportional treaties and resultant shrinkage of proportional reinsurance capacities. It may force the reinsured to increase per risk retention levels, beyond what their financial strength may justify. Under such situations, the “Per Risk” Excess of Loss provides protection for the increased retention levels. This form of reinsurance is mainly used in protecting property risks loss exposures.
Q14.
What is the purpose of Catastrophe Excess of Loss (Cat XL) reinsurance?

a.

To limit losses that arise on the reinsured’s day-to-day operations

b.

To provide protection against number of losses that arise out of a single accident, occurrence or event

c.

To protect a reinsured against an accumulation or aggregation of losses arising from an identified event

d.

To provide protection against adverse underwriting results of proportional treaties

Discuss
Answer: (c).To protect a reinsured against an accumulation or aggregation of losses arising from an identified event Explanation:Catastrophe Excess of Loss (Cat XL) reinsurance protects a reinsured against an accumulation or aggregation of losses arising from an identified event such as earthquake, flood, cyclone, riots, etc., which may affect a large number of risks. Such accumulations or aggregation may far exceed the reinsured’s retention on an “any one risk” basis.
Q15.
What is the purpose of Surplus facultative & Facultative Excess of Loss reinsurance?

a.

To limit losses that arise on the reinsured’s day-to-day operations

b.

To provide protection against number of losses that arise out of a single accident, occurrence or event

c.

To protect a reinsured against an accumulation or aggregation of losses arising from an identified event

d.

For agreed deductibles and selected limits of cover

Discuss
Answer: (d).For agreed deductibles and selected limits of cover Explanation:Surplus facultative & Facultative Excess of Loss reinsurance may be affected on an individual risk where a ‘one off’ type of large loss may be expected to occur or Facultative XL reinsurance may be arranged on a number of such risks. Both these types of reinsurances are for agreed deductibles and selected limits of cover.
Q16.
What is surplus facultative reinsurance?

a.

A type of reinsurance that protects against a large number of risks

b.

A type of reinsurance that protects against a one-off large loss

c.

A type of reinsurance that protects against catastrophic events

d.

A type of reinsurance that limits the aggregate amount of loss in a given period

Discuss
Answer: (b).A type of reinsurance that protects against a one-off large loss Explanation:Surplus facultative reinsurance is a type of reinsurance that is affected on an individual risk where a ‘one off’ type of large loss may be expected to occur.
Q17.
What is catastrophe excess of loss reinsurance?

a.

A type of reinsurance that protects against a large number of risks

b.

A type of reinsurance that protects against a one-off large loss

c.

A type of reinsurance that protects against catastrophic events

d.

A type of reinsurance that limits the aggregate amount of loss in a given period

Discuss
Answer: (c).A type of reinsurance that protects against catastrophic events Explanation:Catastrophe excess of loss reinsurance protects a reinsured against an accumulation or aggregation of losses arising from an identified event such as earthquake, flood, cyclone, riots, etc., which may affect a large number of risks.
Q18.
What is the trigger for stop loss or excess of loss ratio reinsurance?

a.

Pre-agreed percentage of net written premiums

b.

Loss ratio of the reinsured for any one class of business

c.

Catastrophic events

d.

Percentage of losses exceeding the deductible

Discuss
Answer: (a).Pre-agreed percentage of net written premiums Explanation:The trigger for stop loss or excess of loss ratio reinsurance is a pre-agreed percentage of net written premiums.
Q19.
What is the difference between Aggregate Excess of Loss and Excess of Loss Ratio reinsurance?

a.

The parameters in Aggregate Excess of Loss are expressed in amounts, while in Excess of Loss Ratio they are expressed in percentages.

b.

The parameters in Excess of Loss Ratio are expressed in amounts, while in Aggregate Excess of Loss they are expressed in percentages.

c.

There is no difference between them.

d.

None of the above.

Discuss
Answer: (a).The parameters in Aggregate Excess of Loss are expressed in amounts, while in Excess of Loss Ratio they are expressed in percentages. Explanation:Aggregate Excess of Loss uses amounts as triggers for cover, while Excess of Loss Ratio uses loss percentages/loss ratio.
Q20.
What is a possible trigger for Aggregate Excess of Loss cover?

a.

A pre-agreed percentage of net written premiums.

b.

A pre-agreed limit of cover in excess of accumulation of net retained losses.

c.

A pre-agreed percentage of loss ratio.

d.

None of the above.

Discuss
Answer: (b).A pre-agreed limit of cover in excess of accumulation of net retained losses. Explanation:A trigger for Aggregate Excess of Loss can be a pre-agreed limit of cover in excess of accumulation of net retained losses.
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