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 7 of 16

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Q61.
What is the alternative method to allowing the cessions to run to their natural expiry in the event of treaty cancellation?

a.

Portfolio transfer

b.

Clean cut method

c.

Natural expiration transfer

d.

Multiplicity of accounts method

Discuss
Answer: (a).Portfolio transfer Explanation:The alternative method to allowing the cessions to run to their natural expiry is the portfolio transfer or clean cut method.
Q62.
Why is the portfolio transfer or clean cut method preferred over the natural expiry method?

a.

It allows for easier administrative work and is cost-effective

b.

It ensures the continuation of the existing reinsurers on the treaty

c.

It leads to a greater multiplicity of accounts for open years

d.

It reduces the number of accounts required for open years

Discuss
Answer: (a).It allows for easier administrative work and is cost-effective Explanation:The portfolio transfer or clean cut method is preferred because it allows for easier administrative work and is cost-effective compared to the natural expiry method, which leads to a tremendous multiplicity of accounts for open years.
Q63.
What is the portfolio transfer method used for in reinsurance?

a.

Calculating the pro-rata premium for each cession

b.

Determining the gross portfolio to be withdrawn by the ceding insurer

c.

Estimating the reinsurance commission for the renewing reinsurer

d.

Valuing the unexpired portion of each cession separately

Discuss
Answer: (b).Determining the gross portfolio to be withdrawn by the ceding insurer Explanation:The portfolio transfer method is used to determine the gross portfolio to be withdrawn by the ceding insurer from his current reinsurer, subject to deduction of reinsurance commission, and transferred to the renewing reinsurer.
Q64.
Why is the portfolio transfer method not always used for valuing portfolios?

a.

It involves considerable expense and work for the ceding insurer

b.

It leads to inaccuracies in the calculation of pro-rata premiums

c.

It requires additional calculations for reinsurance commission

d.

It is not applicable to surplus and quota share treaties

Discuss
Answer: (a).It involves considerable expense and work for the ceding insurer Explanation:The portfolio transfer method is not always used because it involves considerable expense and work for the ceding insurer due to the large number of cessions under a treaty.
Q65.
What percentage of the premiums of the previous year is typically used for portfolio transfer in surplus and quota share treaties?

a.

20% to 25%

b.

30% to 35%

c.

35% to 40%

d.

40% to 45%

Discuss
Answer: (c).35% to 40% Explanation:The percentage of premium for effecting portfolio withdrawal and entry in surplus and quota share treaties is usually 35% to 40%, without deduction for reinsurance commission.
Q66.
How is the portfolio transfer percentage of 35% to 40% determined using the "50% Method"?

a.

By assuming that 50% of the premiums are unexpired at the end of the year

b.

By dividing the premiums into 50 equal parts for each month of the year

c.

By deducting a commission of 30% from the gross portfolio

d.

By considering alterations in the composition of the business portfolio

Discuss
Answer: (a).By assuming that 50% of the premiums are unexpired at the end of the year Explanation:The portfolio transfer percentage of 35% to 40% is determined using the "50% Method" by assuming that approximately 50% of the premiums are unexpired at the end of the year.
Q67.
What are the "eighth," "twelfth," and "twenty-fourth" systems used for in the calculation of portfolio premium?

a.

Calculating the reinsurance commission for the renewing reinsurer

b.

Adjusting the portfolio transfer based on alterations in the business composition

c.

Estimating the unexpired portions of each month's business at the end of the year

d.

Dividing the premiums into equal parts based on the number of reinsurers

Discuss
Answer: (c).Estimating the unexpired portions of each month's business at the end of the year Explanation:The "eighth," "twelfth," and "twenty-fourth" systems are used to calculate the unexpired portions of each month's business at the end of the year, considering the assumption that the majority of each month's premiums will usually expire in the middle of the month.
Q68.
What is the purpose of the portfolio withdrawal calculation?

a.

To determine the net portfolio premium for the next year's reinsurers

b.

To estimate the reinsurance commission for the ceding insurer

c.

To calculate the unexpired exposure of each month's premiums

d.

To adjust the fixed percentage calculation for long or short term cessions

Discuss
Answer: (a).To determine the net portfolio premium for the next year's reinsurers Explanation:The portfolio withdrawal calculation is used to determine the net portfolio premium that should be withdrawn and given to the next year's reinsurers.
Q69.
How is the unexpired exposure of each month's premium calculated?

a.

By dividing the premium into equal parts based on the number of reinsurers

b.

By deducting the reinsurance commission from the total premium

c.

By multiplying the premium by the number of unexpired months

d.

By summing up the proportions of unexpired exposure for each month

Discuss
Answer: (d).By summing up the proportions of unexpired exposure for each month Explanation:The unexpired exposure of each month's premium is calculated by summing up the proportions of unexpired exposure for each month based on the assumption of when the majority of each month's premiums will usually expire.
Q70.
Which method provides a more accurate calculation of the net portfolio premium?

a.

Fixed percentage calculation

b.

Pro-rata calculation

c.

Eighth system calculation

d.

Twenty-fourth system calculation

Discuss
Answer: (d).Twenty-fourth system calculation Explanation:The twenty-fourth system calculation provides a more accurate calculation of the net portfolio premium compared to the fixed percentage calculation.
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