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!

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Reinsurance Accounting MCQs | Page 2 of 16

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Q11.
Which type of reinsurance accounts are normally rendered on an "Underwriting Year" basis?

a.

Fire and Accident Proportional Reinsurance

b.

Marine Proportional Reinsurance

c.

Non-Proportional Reinsurance

d.

Catastrophe Excess Reinsurance

Discuss
Answer: (b).Marine Proportional Reinsurance Explanation:The accounts for marine proportional reinsurance are normally rendered on an "Underwriting Year" basis. In these accounts, the premiums are usually shown net of acquisition costs, agency commission, brokerage, and any discount allowed to the insurer. Hence, the reinsurance commission will cover only the ceding insurer's expenses.
Q12.
Is commission payable in non-proportional reinsurance?

a.

Yes, it is included in the reinsurance rate

b.

No, it is determined separately from the reinsurance arrangement

c.

Yes, it is paid by the reinsurer to the ceding insurer

d.

No, it is paid by the ceding insurer to the reinsurer

Discuss
Answer: (b).No, it is determined separately from the reinsurance arrangement Explanation:In non-proportional reinsurance, no commission is payable as part of the reinsurance arrangement. Factors such as commissions and expenses are typically taken into account when determining the rate for the treaty. However, brokerage may still be involved, but it is determined separately from the commission.
Q13.
For which of the following type of business will the accounting be rendered on an ‘Accounts Year’ basis?

a.

Fire and accident proportional reinsurance

b.

Fire and accident non proportional reinsurance

c.

Marine proportional reinsurance

d.

Marine non proportional basis

Discuss
Answer: (a).Fire and accident proportional reinsurance Explanation:The accounting for fire and accident proportional reinsurance is typically rendered on an 'Accounts Year' basis. In this type of reinsurance, the accounts are prepared based on a specific accounting year. The premiums are usually shown at original gross rates, and the reinsurance commission rate is then applied. This accounting approach allows for the proper assessment and evaluation of the financial performance and results of the fire and accident proportional reinsurance business over a specific accounting period.
Q14.
Which of the following statements about reinsurance accounting formats is correct?

a.

There is a universal standard format for rendering reinsurance accounts.

b.

The financial account includes items related to the reinsurer's share of the technical result.

c.

The technical account includes the balance brought forward from previous accounts.

d.

Portfolio premium and loss withdrawals appear in the first quarter's account.

Discuss
Answer: (b).The financial account includes items related to the reinsurer's share of the technical result. Explanation:In reinsurance accounting, the financial account includes items such as the balance brought forward from previous accounts, premium and loss reserves, interest, loss settlements made, cash loss credit, and the final balance due for settlement. On the other hand, the technical account shows items related to the reinsurer's share of the technical result for the period. While there is no universal standard format for rendering reinsurance accounts, these basic features are commonly included.
Q15.
Which part of the reinsurance account includes items such as premium and loss reserves, interest, and loss settlements?

a.

Technical account

b.

Financial account

c.

Portfolio account

d.

Reinsurer's account

Discuss
Answer: (b).Financial account Explanation:The financial account in reinsurance accounting includes various financial items such as premium and loss reserves, interest on reserves, loss settlements made, and other financial transactions. It provides a comprehensive overview of the financial aspects of the reinsurance agreement
Q16.
What is the purpose of reinsurance commission?

a.

To reimburse the reinsurer for acquiring the business

b.

To reimburse the ceding insurer for acquiring the business

c.

To cover the administrative expenses of the reinsurer

d.

To cover the administrative expenses of the ceding insurer

Discuss
Answer: (b).To reimburse the ceding insurer for acquiring the business Explanation:Reinsurance commission is an amount paid by the reinsurer to the ceding insurer as a percentage of the premium. The purpose of the reinsurance commission is to reimburse the ceding insurer for the expenses incurred in acquiring the business, including agency commission and expense of management. The ceding insurer invests time and resources in prospecting, issuing policies, and adjusting claims, which benefit the reinsurer indirectly. Therefore, the reinsurer compensates the ceding insurer through the reinsurance commission. Option b accurately describes the purpose of reinsurance commission. Options a, c, and d incorrectly describe the purpose or the recipient of the commission.
Q17.
How are premiums typically accounted for in reinsurance accounting?

a.

Gross premium

b.

Net premium

c.

Gross premium with deductions

d.

Net premium with deductions

Discuss
Answer: (b).Net premium Explanation:In reinsurance accounting, premiums are typically accounted for as net premiums. This means that the premiums are recorded after deducting any original acquisition costs, such as agency commission and other expenses incurred by the ceding insurer. Net premiums reflect the actual amount received by the ceding insurer for the reinsurance coverage.
Q18.
What is the primary advantage of using a flat rate of commission for reinsurance accounting?

a.

Easy calculation and accounting

b.

Reflects the loss ratio of the treaty

c.

Provides flexibility for different types of business

d.

Allows for adjustments based on earned premiums

Discuss
Answer: (a).Easy calculation and accounting Explanation:Using a flat rate of commission for reinsurance accounting has the primary advantage of being easy to calculate and account for. With a fixed percentage applied to the premiums ceded, less returns and cancellations, the commission payable can be determined straightforwardly. This method simplifies the accounting process and ensures consistent commission calculations.
Q19.
What is the purpose of using a sliding scale commission for reinsurance accounting?

a.

Easy calculation and accounting

b.

Reflects the loss ratio of the treaty

c.

Provides flexibility for different types of business

d.

Allows for adjustments based on earned premiums

Discuss
Answer: (b).Reflects the loss ratio of the treaty Explanation:The purpose of using a sliding scale commission for reinsurance accounting is to reflect the loss ratio of the treaty. This method calculates the commission rate based on the percentage that the incurred losses bear to the earned premiums. By considering the actual loss experience of the treaty, the commission rate can be adjusted to align with the performance of the business.
Q20.
What is the purpose of the provisional commission in reinsurance accounting?

a.

To ensure timely payment of commission

b.

To calculate the actual rate of commission

c.

To stabilize the results under a treaty

d.

To adjust the commission at the end of the treaty period

Discuss
Answer: (c).To stabilize the results under a treaty Explanation:The purpose of the provisional commission in reinsurance accounting is to stabilize the results under a treaty. As the actual rate of commission cannot be determined until the end of the year, a provisional commission is charged based on an agreed midpoint between the minimum and maximum commission. This provisional commission helps balance the profitability for the reinsurer in both good and bad years, ensuring a more stable outcome.
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