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 7 of 10

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Q61.
What is the basis for rating working excess of loss treaty?

a.

Pure Burning Cost

b.

Burning Cost

c.

Exposure Rating

d.

Reinstatement

Discuss
Answer: (b).Burning Cost Explanation:The basis for rating working excess of loss treaty is Burning Cost.
Q62.
What is the purpose of reinstatement provisions?

a.

To provide for automatic restoration of limit of cover subject to mutually agreed additional premium

b.

To provide for automatic restoration of limit of cover without any additional premium

c.

To provide for automatic reduction of limit of cover subject to mutually agreed additional premium

d.

None of the above

Discuss
Answer: (a).To provide for automatic restoration of limit of cover subject to mutually agreed additional premium Explanation:The purpose of reinstatement provisions is to provide for automatic restoration of the limit of cover subject to mutually agreed additional premium.
Q63.
What is the purpose of reinstatement provisions?What is the purpose of a reinstatement provision in non-proportional treaties?

a.

To provide for automatic restoration of limit of cover subject to mutually agreed additional premiumTo provide automatic restoration of limit of cover

b.

To provide for automatic restoration of limit of cover without any additional premiumTo deplete or cease cover upon payment of loss

c.

To provide for automatic reduction of limit of cover subject to mutually agreed additional premiumTo provide coverage for large claims

d.

None of the aboveTo provide additional premium for small claims

Discuss
Answer: (a).To provide for automatic restoration of limit of cover subject to mutually agreed additional premiumTo provide automatic restoration of limit of cover Explanation:The purpose of reinstatement provisions is to provide for automatic restoration of the limit of cover subject to mutually agreed additional premium.A reinstatement provision in non-proportional treaties provides for automatic restoration of limit of cover subject to mutually agreed additional premium.
Q64.
Which type of covers typically have reinstatement provisions?

a.

Catastrophe excess of loss covers

b.

Proportional treaty covers

c.

Excess of loss treaty based on 'Burning Cost'

d.

both a and c

Discuss
Answer: (d).both a and c Explanation:Typically, reinstatement provisions are relevant for catastrophe excess of loss covers. However, this facility is extended to Risk XL cover on a free of cost basis for the first or the first two reinstatements with any subsequent reinstatement bearing a stiff additional premium. In the case of excess of loss treaty based on 'Burning Cost', the GNPI for the purpose of reinstatement would need to be agreed at the time of inception.
Q65.
How is the additional premium for reinstatement calculated?

a.

Pro-rated for the amount reinstated

b.

Pro-rated for the balance of the treaty period

c.

Pro-rated for a combination of both amounts reinstated and balance of treaty period

d.

All of the above

Discuss
Answer: (d).All of the above Explanation:The additional premium for reinstatement may follow the treaty premium and be pro-rated for the amount reinstated, the balance of the treaty period, or a combination of both amounts reinstated and balance of treaty period. Any basis would be as negotiated and agreed with the treaty reinsurer.
Q66.
What is the scope of a claim falling under a treaty?

a.

The reinsured can collect the whole loss from one reinsurer

b.

The reinsured bears the whole loss

c.

All reinsurers participating bear their respective share of the loss

d.

The reinsured can collect the whole loss from the treaty reinsurer

Discuss
Answer: (c).All reinsurers participating bear their respective share of the loss Explanation:A claim falling within the scope of the treaty will be calculated subject to the provisions of the ultimate net loss clause which are applicable. All reinsurers participating bear their respective share of the loss, and the reinsured cannot collect the whole loss from one reinsurer.
Q67.
What is the purpose of excess of loss reinsurance?

a.

To generate profits for the reinsured

b.

To provide a source of funds at the reinsured’s immediate disposal

c.

To reduce the risk of catastrophic events

d.

To minimize the occurrence of losses

Discuss
Answer: (b).To provide a source of funds at the reinsured’s immediate disposal Explanation:Excess of loss reinsurance is designed to be a source of funds at the reinsured's immediate disposal.
Q68.
When is the reinsured required to advise the reinsurer of a potential claim?

a.

As soon as he has reason to believe a claim will exceed the retention

b.

When the claim is paid by the insurer

c.

At the end of the contract period

d.

Only for certain types of claims

Discuss
Answer: (a).As soon as he has reason to believe a claim will exceed the retention Explanation:The reinsured is required to advise his reinsurer as soon as he has reason to believe a claim will exceed the retention.
Q69.
When does the reinsurer typically receive advice of outstanding losses?

a.

At the end of the contract period

b.

As soon as the claim exceeds the retention

c.

When the claim is paid by the insurer

d.

Only for certain types of claims

Discuss
Answer: (a).At the end of the contract period Explanation:In practice the reinsurer receives advice of losses outstanding at the end of the contract period.
Q70.
What is the purpose of specifying Hour and Time zone in the contract?

a.

To reduce the occurrence of losses

b.

To generate profits for the reinsured

c.

To provide a source of funds at the reinsured’s immediate disposal

d.

To address cover for loss

Discuss
Answer: (d).To address cover for loss Explanation:As the contract addresses cover for loss it is important to specify Hour and Time zone.
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