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 4 of 10

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Q31.
What is ultimate net loss?

a.

The loss incurred by the reinsured after all recoveries from other reinsurances

b.

The loss incurred by the reinsured after all claims' costs are calculated

c.

The loss incurred by the reinsured after all employees' salaries are included

d.

The loss incurred by the reinsured before any recoveries are deducted

Discuss
Answer: (d).The loss incurred by the reinsured before any recoveries are deducted Explanation:Ultimate net loss is defined as the loss incurred by the reinsured before any recoveries from other reinsurances and before the excess of loss reinsurer becomes interested.
Q32.
What types of expenditure are included in the calculation of ultimate net loss?

a.

Salaries of employees and office costs of the insurer

b.

Survey reports and assessor's fees

c.

Salvage costs and legal costs

d.

Both b and c

Discuss
Answer: (d).Both b and c Explanation:The ultimate net loss includes all sums paid in respect of the claim as well as 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.
Q33.
What is the ideal level of retention for excess of loss cover?

a.

Low enough to be involved in the majority of the claims

b.

High enough to keep the insurer from being too greatly exposed in any one loss

c.

Both a and b

d.

Neither a nor b

Discuss
Answer: (c).Both a and b Explanation:The ideal level of retention for excess of loss cover 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.
Q34.
What is the difference between retention per risk and retention per event?

a.

Retention per risk is used for catastrophe cover, while retention per event is used for working cover.

b.

Retention per risk is fixed at an amount less than the amount which is accepted for the net account on any one risk under proportional reinsurance arrangement, while retention per event is normally more than the amount retained under each individual risk.

c.

Retention per risk is for unknown accumulations arising out of one event, while retention per event is used to reduce the insurer's loss in respect of a single risk.

d.

None of the above.

Discuss
Answer: (b).Retention per risk is fixed at an amount less than the amount which is accepted for the net account on any one risk under proportional reinsurance arrangement, while retention per event is normally more than the amount retained under each individual risk. Explanation:Retention per risk is used to reduce the insurer's loss in respect of a single risk, while retention per event is used for catastrophe cover to protect the insurer against unknown accumulations arising out of one event. The retention under this type of excess of loss is normally more than the amount retained under each individual risk.
Q35.
What is the main intention behind the calculation of a suitable rate for a reinsurer?

a.

To cover the normal claims expected to occur

b.

To reserve for worsening experience- including inflation and I.B.N.R. claims

c.

To cover the reinsurer's management expenses

d.

All of the above

Discuss
Answer: (d).All of the above Explanation:The main intention behind the calculation of a suitable rate for a reinsurer is to cover the normal claims expected to occur, reserve for worsening experience- including inflation and I.B.N.R. claims, cover the reinsurer's management expenses, and provide surplus that may be termed a profit.
Q36.
What are the factors that affect the rate for excess of loss covers?

a.

Level of excess point

b.

The limit and exposure to the reinsurer

c.

The class of insurance business

d.

All of the above

Discuss
Answer: (d).All of the above Explanation:The factors that affect the rate for excess of loss covers are the level of excess point, the limit and exposure to the reinsurer, the class of insurance business, the exclusions, the underwriting limits of the reinsured, and the past experience of the treaty.
Q37.
How does the retention of the reinsured affect the rate for excess of loss covers?

a.

The lower the retention of the reinsured, the larger the number of claims the reinsurer can expect to exceed it, therefore the higher will be the rate.

b.

The higher the retention of the reinsured, the larger the number of claims the reinsurer can expect to exceed it, therefore the higher will be the rate.

c.

The lower the retention of the reinsured, the smaller the number of claims the reinsurer can expect to exceed it, therefore the higher will be the rate.

d.

The higher the retention of the reinsured, the smaller the number of claims the reinsurer can expect to exceed it, therefore the higher will be the rate.

Discuss
Answer: (a).The lower the retention of the reinsured, the larger the number of claims the reinsurer can expect to exceed it, therefore the higher will be the rate. Explanation:The lower the retention of the reinsured, the larger the number of claims the reinsurer can expect to exceed it, therefore the higher will be the rate for excess of loss covers. The greater the limit to the reinsurer, the greater his exposure and the higher the rate.
Q38.
How does the range of insurance business covered affect the rate for excess of loss covers?

a.

Where a treaty covers a number of classes of business or where there is only little exclusion the risk assumed by the reinsurer would be greater.

b.

Where a treaty covers only one class of business or where there are many exclusions, the risk assumed by the reinsurer would be greater.

c.

The range of insurance business covered does not affect the rate for excess of loss covers.

d.

None of the above.

Discuss
Answer: (a).Where a treaty covers a number of classes of business or where there is only little exclusion the risk assumed by the reinsurer would be greater. Explanation:Where a treaty covers a number of classes of business or where there is only little exclusion, the risk assumed by the reinsurer would be greater, and this affects the rate for excess of loss covers.
Q39.
What are the types of risk insured and the size of the sum insured that affect the rate for excess of loss covers?

a.

They affect the degree to which the reinsurer would be exposed to claims.

b.

They do not affect the rate for excess of loss covers.

c.

They affect the reinsurer's management expenses.

d.

They affect the underwriting limits of the reinsured.

Discuss
Answer: (a).They affect the degree to which the reinsurer would be exposed to claims. Explanation:The types of risk insured and the size of the sum insured affect the degree to which the reinsurer would be exposed to claims, and this affects the rate for excess of loss covers.
Q40.
How does the lower retention of the reinsured affect the rate?

a.

It decreases the rate

b.

It increases the rate

c.

It does not affect the rate

d.

It is impossible to say

Discuss
Answer: (b).It increases the rate Explanation:The lower the retention of the reinsured the larger the number of claims the reinsurer can expect to exceed it, therefore the higher will be the rate.
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