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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Q51.
What is the burning cost method of rating?

a.

A method used to rate catastrophe excess of loss cover

b.

A method used to rate proportional treaties

c.

A method used to rate working excess of loss treaties

d.

A method used to rate life insurance policies

Discuss
Answer: (c).A method used to rate working excess of loss treaties Explanation:The burning cost method is the basis for rating working excess of loss treaty.
Q52.
How is the rate of premium agreed upon in the burning cost method?

a.

A flat rate is applied to the gross premium income of the particular class of business.

b.

An estimate is made of premium to be collected by way of deposit and the rate of premium is agreed as a range.

c.

The reinsurer may quote a Flat Premium amount instead of a Flat Rate.

d.

The rate is calculated based on stress scenarios and recoupment of catastrophe loss.

Discuss
Answer: (b).An estimate is made of premium to be collected by way of deposit and the rate of premium is agreed as a range. Explanation:At the beginning of the treaty year an estimate is made of premium to be collected by way of deposit. The rate of premium is agreed as a range: minimum rate payable by reinsured and maximum rate chargeable by the reinsurer.
Q53.
What is the payback method used for?

a.

To determine the premium for working excess of loss cover.

b.

To determine the premium for catastrophe excess of loss cover.

c.

To determine the premium for proportional treaties.

d.

To determine the premium for life insurance policies.

Discuss
Answer: (b).To determine the premium for catastrophe excess of loss cover. Explanation:Catastrophe modeling based on stress scenarios and recoupment of catastrophe loss through premium collected over a period of 250 years are used to determine premium for catastrophe excess of loss cover. This method is also known as the payback method and is different from historical rating (burning cost method) or exposure rating (actuarial method).
Q54.
What is the Rate on Line used for?

a.

To determine the consistency in rating between various covers.

b.

To determine the degree of exposure to natural perils.

c.

To determine the premium for working excess of loss cover.

d.

To determine the premium for catastrophe excess of loss cover.

Discuss
Answer: (a).To determine the consistency in rating between various covers. Explanation:The Rate on Line is applied to the limit of cover and it assists the reinsurer to judge rating consistency as between various covers that he quotes.
Q55.
What are the main factors in rating a catastrophe cover?

a.

The degree of exposure to natural perils

b.

The amount of retention

c.

The insurer's retention under each policy

d.

All of the above

Discuss
Answer: (d).All of the above Explanation:The main factors in rating a catastrophe cover are the amount of retention (particularly in relation to the insurer's retention under each policy) and the cover required and degree of exposure to natural perils.
Q56.
What is the payback method in catastrophe modeling?

a.

Catastrophe modeling based on stress scenarios and recoupment of catastrophe loss through premium collected over a period of 250 years

b.

The basis for rating working excess of loss treaty

c.

The rate for the first year of treaty based on historical experience of losses

d.

A method of adjusting the premium calculated at the end of the treaty year

Discuss
Answer: (a).Catastrophe modeling based on stress scenarios and recoupment of catastrophe loss through premium collected over a period of 250 years Explanation:The payback method is a method of catastrophe modeling based on stress scenarios and recoupment of catastrophe loss through premium collected over a period of 250 years to assist in determining the premium for catastrophe excess of loss cover.
Q57.
What is the basis for rating working excess of loss treaty?

a.

Historical rating (burning cost method)

b.

Exposure rating (actuarial method)

c.

Pure burning cost

d.

All of the above

Discuss
Answer: (a).Historical rating (burning cost method) Explanation:The burning cost method is the basis for rating working excess of loss treaty.
Q58.
What is the formula for calculating pure burning cost?

a.

Treaty period GNPI (Paid losses + Outstanding losses) / 70

b.

(Paid losses + Outstanding losses) / Treaty period GNPI * 100/ 75

c.

(Treaty period GNPI - Paid losses) / 70

d.

(Treaty period GNPI - Paid losses) / 75

Discuss
Answer: (b).(Paid losses + Outstanding losses) / Treaty period GNPI * 100/ 75 Explanation:The formula for calculating pure burning cost is (Paid losses + Outstanding losses) / Treaty period GNPI * 100/ 75.
Q59.
What are the main factors in rating a catastrophe cover?

a.

Amount of retention

b.

Cover required and degree of exposure to natural perils

c.

Both a and b

d.

None of the above

Discuss
Answer: (c).Both a and b Explanation:The main factors in rating a catastrophe cover are the amount of retention (particularly in relation to the insurer’s retention under each policy) and the cover required and degree of exposure to natural perils (earthquake, windstorm, etc.).
Q60.
What is the payback method used for?

a.

To determine premium for catastrophe excess of loss cover

b.

To determine premium for working excess of loss treaty

c.

To calculate pure burning cost

d.

None of the above

Discuss
Answer: (a).To determine premium for catastrophe excess of loss cover Explanation:The payback method is used to assist in determining premium for catastrophe excess of loss cover.
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