Reinsurance Accounting MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on Reinsurance Accounting, 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 Reinsurance Accounting 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 Reinsurance Accounting mcq questions that explore various aspects of Reinsurance Accounting problems. Each MCQ is crafted to challenge your understanding of Reinsurance Accounting 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 Reinsurance Accounting MCQs are your pathway to success in mastering this essential IC85 Reinsurance Management topic.

Note: Each of the following question comes with multiple answer choices. Select the most appropriate option and test your understanding of Reinsurance Accounting. You can click on an option to test your knowledge before viewing the solution for a MCQ. Happy learning!

So, are you ready to put your Reinsurance Accounting knowledge to the test? Let's get started with our carefully curated MCQs!

Reinsurance Accounting MCQs | Page 12 of 16

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Q111.
What is the practice in India regarding reserves for unexpired risks in general insurance?

a.

Provide 50% on net premium for Fire and Miscellaneous Accident business and 100% on Marine business

b.

Provide 100% on net premium for Fire and Miscellaneous Accident business and 50% on Marine business

c.

Provide 50% on net premium for all types of general insurance business

d.

Provide 100% on net premium for all types of general insurance business

Discuss
Answer: (a).Provide 50% on net premium for Fire and Miscellaneous Accident business and 100% on Marine business Explanation:In India, the practice regarding reserves for unexpired risks in general insurance is to provide 50% on net premium for Fire and Miscellaneous Accident business and 100% on Marine business. These percentages represent the maximum allowed in the computation of profits for general insurance companies as per the Indian Income Tax Act, 1961.
Q112.
How are additional reserves or catastrophic reserves typically treated in the computation of profits?

a.

They are included as a deduction before assessment of tax

b.

They are included as a deduction after assessment of tax

c.

They are not allowed as a deduction before assessment of tax

d.

They are not allowed as a deduction after assessment of tax

Discuss
Answer: (c).They are not allowed as a deduction before assessment of tax Explanation:In most countries, including India, additional reserves or catastrophic reserves are not allowed as a deduction before the assessment of tax. The normal format of profit computation as laid down by legislation does not provide for such reserves, and income tax authorities do not permit their deduction. Therefore, if an insurer or reinsurer wishes to set up an additional catastrophic reserve, it must be done out of profit after tax.
Q113.
What is the maximum percentage allowed for reserves for unexpired risks in the computation of profits in general insurance companies in India?

a.

25%

b.

50%

c.

75%

d.

100%

Discuss
Answer: (b).50% Explanation:In the computation of profits in general insurance companies in India, the maximum percentage allowed for reserves for unexpired risks is 50%. This percentage applies to Fire and Miscellaneous Accident business, while for Marine business, the maximum allowed is 100%. These percentages are prescribed by the Indian Income Tax Act, 1961.
Q114.
In which of the following reinsurance commission methods will the commission payable be determined by applying the agreed percentage of commission to the premiums ceded less returns and cancellation?

a.

Flat rate of commission

b.

Sliding Scale of commission

c.

Overriding commission

d.

Profit commission

Discuss
Answer: (a).Flat rate of commission Explanation:In the flat rate of commission method, the commission payable is determined by applying the agreed percentage of commission to the premiums ceded (i.e., the premiums transferred to the reinsurer) less returns and cancellations. This means that the commission is calculated based on the net premiums ceded after deducting any returns or cancellations. It is a straightforward method where the commission remains constant regardless of the performance or profitability of the business.
Q115.
Which of the following is an example of a taxation aspect in reinsurance?

a.

Stamp duties

b.

Dividend payments

c.

Claims processing fees

d.

Risk assessment charges

Discuss
Answer: (a).Stamp duties Explanation:Stamp duties are calculated on various elements such as premium, commission, profit commission, losses, or other bases. They are a form of taxation related to reinsurance. The other options mentioned in the question are not directly related to taxation aspects in reinsurance. Dividend payments are profit distributions to shareholders, claims processing fees are associated with claims handling, and risk assessment charges pertain to evaluating risks.
Q116.
What is the objective of a reinsurer over a period of years?

a.

To obtain a profit on the reinsurances accepted

b.

To reduce the ceding commission or profit commission

c.

To stabilize the insurer's results

d.

To cover expenses and constitute reserves

Discuss
Answer: (a).To obtain a profit on the reinsurances accepted Explanation:The objective of a reinsurer over a period of years is to obtain a profit on the reinsurances accepted.
Q117.
How does a reinsurer transfer their tax burden to the ceding insurer?

a.

By reducing the ceding commission or profit commission

b.

By paying less tax on smaller profit margins

c.

By stabilizing the insurer's results

d.

By constituting reserves for fluctuation and catastrophe

Discuss
Answer: (a).By reducing the ceding commission or profit commission Explanation:A reinsurer transfers their tax burden to the ceding insurer by reducing the ceding commission or profit commission.
Q118.
Which type of taxation is suggested as a possible solution for budget problems?

a.

Taxation imposed on reinsurers on the basis of an assumed income

b.

Stamp duties on premiums, commission, and profit commission

c.

Withholding tax on reserve deposit interest

d.

Certification duty on reinsurance contracts

Discuss
Answer: (a).Taxation imposed on reinsurers on the basis of an assumed income Explanation:Taxation imposed on reinsurers on the basis of an assumed income is suggested as a possible solution for budget problems.
Q119.
What makes determining the profit of a reinsurer difficult?

a.

The sensitivity of reinsurance to taxation

b.

The need for reserves in reinsurance

c.

The fluctuations in results accepted by reinsurance

d.

All of the above

Discuss
Answer: (d).All of the above Explanation:Determining the profit of a reinsurer is difficult due to the sensitivity of reinsurance to taxation, the need for reserves, and the accepted fluctuations in results.
Q120.
What does the insurer-reinsurer relationship aim to do?

a.

Reduce the ceding commission or profit commission

b.

Determine the profit of the reinsurer

c.

Stabilize the insurer's results

d.

Constitute reserves for fluctuation and catastrophe

Discuss
Answer: (c).Stabilize the insurer's results Explanation:The insurer-reinsurer relationship aims to stabilize the insurer's results.
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