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.

In this section, you'll find a wide range of Methods of Reinsurance II mcq questions that explore various aspects of Methods of Reinsurance II problems. Each MCQ is crafted to challenge your understanding of Methods of Reinsurance II 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 II MCQs are your pathway to success in mastering this essential IC85 Reinsurance Management topic.

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Methods of Reinsurance II MCQs | Page 3 of 10

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Q21.
What is Whole Account Excess of Loss cover?

a.

A reinsurance cover that limits the aggregate amount of loss the reinsured would lose on a given class of business in an annual period.

b.

A reinsurance cover that indemnifies the reinsured for an aggregate (cumulative) amount of losses in excess of a specified aggregate amount.

c.

A reinsurance cover that protects the reinsured's whole book of business, incorporating all classes of business.

d.

None of the above.

Discuss
Answer: (c).A reinsurance cover that protects the reinsured's whole book of business, incorporating all classes of business. Explanation:Whole Account Excess of Loss cover is a reinsurance cover that protects the reinsured's whole book of business, incorporating all classes of business.
Q22.
ABC insurer wants to protect his whole book of business. Hence he enters into an arrangement where a single composite cover is installed for protection of its whole business, incorporating all classes of business. This arrangement is known as __________________.

a.

Excess of loss

b.

Aggregate excess of loss

c.

Whole account excess of loss

d.

Umbrella excess of loss

Discuss
Answer: (c).Whole account excess of loss Explanation:The given question describes a scenario where an insurer wants to protect their whole book of business and enters into an arrangement where a single composite cover is installed for protection of its whole business, incorporating all classes of business. This arrangement is known as Whole Account Excess of Loss cover.
Q23.
In non-proportional treaty, how can the reinsured split and structure their total XL requirement?

a.

In equal proportions

b.

In layers

c.

In fixed amounts

d.

In percentages

Discuss
Answer: (b).In layers Explanation:The reinsured can split & structure his total XL requirement in layers depending on market conditions, availability of capacity, and cost-effectiveness. These layers would sit on top of each other consecutively; each can be placed with different reinsurers and get triggered only after capacity of the previous layer is exhausted.
Q24.
What is co-insurance in excess of loss cover?

a.

The reinsurer's liability for the whole of the excess

b.

The reinsured's liability for the whole of the excess

c.

The reinsurer's liability for a percentage of the excess

d.

The reinsured's liability for a percentage of the excess

Discuss
Answer: (c).The reinsurer's liability for a percentage of the excess Explanation:Co-insurance can be built into the excess of loss cover, where the reinsurer may not wish to be liable for the whole of the excess but only for a percentage, e.g., 90%, and the reinsured retains the balance.
Q25.
What is co-insurance in excess of loss cover?What is the definition of ultimate net loss in non-proportional reinsurance?

a.

The reinsurer's liability for the whole of the excessThe total loss incurred by the reinsured after recoveries from all other reinsurances and before the excess of loss reinsurer becomes interested

b.

The reinsured's liability for the whole of the excessThe total loss incurred by the reinsured after recoveries from all other reinsurances and after the excess of loss reinsurer becomes interested

c.

The reinsurer's liability for a percentage of the excessThe total loss incurred by the reinsured before recoveries from all other reinsurances and after the excess of loss reinsurer becomes interested

d.

The reinsured's liability for a percentage of the excessThe total loss incurred by the reinsured before recoveries from all other reinsurances and before the excess of loss reinsurer becomes interested

Discuss
Answer: (b).The reinsurer's liability for a percentage of the excessThe total loss incurred by the reinsured after recoveries from all other reinsurances and before the excess of loss reinsurer becomes interested Explanation:Co-insurance can be built into the excess of loss cover, where the reinsurer may not wish to be liable for the whole of the excess but only for a percentage, e.g., 90%, and the reinsured retains the balance.Ultimate net loss is the loss that exceeds the net retained loss after recoveries from all other reinsurances and before the excess of loss reinsurer becomes interested.
Q26.
What costs are included in the calculation of ultimate net loss in non-proportional reinsurance?

a.

Survey reports, assessor’s fees, salvage costs, legal costs, interest, etc.

b.

Salaries of employees and office costs of the insurer

c.

Claims paid by the insurer

d.

Recoveries from proportional reinsurers, salvage, subrogation and contribution

Discuss
Answer: (a).Survey reports, assessor’s fees, salvage costs, legal costs, interest, etc. Explanation:The amount of the ultimate net loss consists not only of all sums paid in respect of the claim but also all expenditure incurred by the insurer in connection with the claim, such as survey reports, assessor’s fees, salvage costs, legal costs, interest, etc.
Q27.
Which of the following is an important consideration when setting the reinsured's retention for the excess of loss cover in non-proportional reinsurance?

a.

The reinsured should set the retention high enough to be involved in the majority of claims

b.

The reinsured should set the retention low enough to be exposed in any one loss

c.

The reinsured should set the retention high enough to keep the insurer from being too greatly exposed in any one loss

d.

The reinsured should set the retention low enough to keep the insurer from being too greatly exposed in any one loss

Discuss
Answer: (c).The reinsured should set the retention high enough to keep the insurer from being too greatly exposed in any one loss Explanation:The ideal level of retention has been vaguely stated as being low enough as not to be involved in the majority of the claims and yet high enough to keep the insurer from being too greatly exposed in any one loss.
Q28.
What is ultimate net loss in non-proportional reinsurance?

a.

The net loss after recoveries from all other reinsurances

b.

The net loss after deducting salaries of employees and office costs of the insurer

c.

The net loss after recoveries from proportional reinsurers, salvage, subrogation and contribution

d.

The net loss after excluding survey reports, assessor’s fees, salvage costs, legal costs, and interest

Discuss
Answer: (d).The net loss after excluding survey reports, assessor’s fees, salvage costs, legal costs, and interest Explanation:Ultimate net loss in non-proportional reinsurance is defined as the amount that has to be protected, which exceeds the net retained loss after recoveries from all other reinsurances and before the excess of loss reinsurer becomes interested. The amount of the ultimate net loss consists not only of all sums paid in respect of the claim but also all expenditure incurred by the insurer in connection with the claim, such as survey reports, assessor’s fees, salvage costs, legal costs, interest, etc. However, salaries of employees and office costs of the insurer are not included in the calculation of the claims' costs. Recoveries from proportional reinsurers, salvage, subrogation, and contribution are deducted from the claims' costs.
Q29.
What is one of the most difficult decisions the reinsured has to make in non-proportional reinsurance?

a.

The setting of the retention for the excess of loss cover

b.

The definition of ultimate net loss

c.

The amount of deposit premium to be paid

d.

The choice of reinsurers for different layers

Discuss
Answer: (a).The setting of the retention for the excess of loss cover Explanation:The setting of the retention for the excess of loss cover is one of the most difficult decisions the reinsured has to make in non-proportional reinsurance. The ideal level of retention has been vaguely stated as being low enough as not to be involved in the majority of the claims and yet high enough to keep the insurer from being too greatly exposed in any one loss. The fixing of the retention will also depend on what type of excess of loss cover is required, such as working cover, catastrophe cover, stop loss/aggregate loss, whole account, or umbrella excess of loss. Retention per risk is used to reduce the insurer’s loss in respect of a single risk, and the retention under the excess of loss will be fixed at an amount less than the amount which they accept for their net account on any one risk under proportional reinsurance arrangement.
Q30.
What is Mindip in non-proportional reinsurance?

a.

The final premium to be paid by the reinsured

b.

The deposit premium calculated by the reinsurer in advance

c.

The minimum premium prescribed for the cover

d.

The premium paid by the reinsured for a catastrophe cover

Discuss
Answer: (c).The minimum premium prescribed for the cover Explanation:Mindip stands for "Minimum & Deposit Premium" and is a term used in non-proportional reinsurance. The XL reinsurer does not know in advance what the final premium will be, and hence calculates the amount of premium to be paid in advance as deposit premium by the reinsured. Such deposit premium, when prescribed as the minimum premium for the cover, is termed as ‘Minimum & Deposit Premium’ (Mindip).
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