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 5 of 16

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Q41.
When is a surplus normally removed from a non-proportional treaty account?

a.

Immediately after the year to which it relates

b.

After one year from the year to which it relates

c.

After two years from the year to which it relates

d.

After three years from the year to which it relates

Discuss
Answer: (d).After three years from the year to which it relates Explanation:A surplus in a non-proportional treaty account is not normally removed from the fund until three years after the year to which it relates. This timeframe allows sufficient information to be available before transferring the surplus to revenue reserves. The long duration of claims reporting necessitates this waiting period to ensure accurate assessment of surplus.
Q42.
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.
Q43.
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.
Q44.
Why is the quarterly accounting system considered advantageous in proportional treaty accounts?

a.

It reduces the administrative cost of producing accounts

b.

It allows for longer periods of cash flow and investment income

c.

It provides more accurate and detailed information to the reinsurer

d.

It ensures timely settlement of balances between the parties

Discuss
Answer: (c).It provides more accurate and detailed information to the reinsurer Explanation:The quarterly accounting system is considered advantageous in proportional treaty accounts for several reasons. Firstly, it allows the reinsurer to closely monitor the development of treaty results, which is crucial for making decisions related to the business. Secondly, it provides more timely and up-to-date information to the reinsurer, allowing for better risk assessment and management. Additionally, it ensures that balances and financial transactions are settled more promptly, reducing delays and potential losses for both parties.
Q45.
What stipulation is typically included in the treaty contract regarding the periodicity of accounts in proportional treaty accounts?

a.

Accounts should be rendered annually

b.

Accounts should be confirmed by the reinsurer within a month

c.

Accounts should be settled by the debtor party within three months

d.

Accounts should be rendered within three months of the close of the quarter

Discuss
Answer: (d).Accounts should be rendered within three months of the close of the quarter Explanation:In proportional treaty accounts, the treaty contract usually stipulates the periodicity at which accounts should be rendered by the ceding insurer. A common stipulation is that the accounts should be rendered within three months of the close of the quarter. This ensures that the reinsurer receives timely and up-to-date financial information for monitoring and decision-making purposes.
Q46.
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.
Q47.
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.
Q48.
What role do brokers play in reinsurance transactions?

a.

They arrange settlement between the parties

b.

They provide financial information to users

c.

They underwrite reinsurance contracts

d.

They regulate government bodies and taxation authorities

Discuss
Answer: (a).They arrange settlement between the parties Explanation:Brokers play a role in arranging the settlement between the ceding insurer and the reinsurer. This settlement process is part of the overall service provided by the broker. The broker ensures that the financial transactions and obligations between the parties are appropriately handled and resolved.
Q49.
Which type of reinsurance accounts are normally rendered on an "Accounts Year" basis?

a.

Fire and Accident Proportional Reinsurance

b.

Marine Proportional Reinsurance

c.

Non-Proportional Reinsurance

d.

Catastrophe Excess Reinsurance

Discuss
Answer: (a).Fire and Accident Proportional Reinsurance Explanation:The accounts for fire and accident proportional reinsurance are typically rendered on an "Accounts Year" basis. In these accounts, the premiums are usually shown at original gross rates, and the reinsurance commission rate is then applied.
Q50.
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.
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