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 9 of 16

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Q81.
Who reviews and approves the reinsurance arrangements of the GIC Re?

a.

Reserve Bank of India

b.

Government of India

c.

Insurance Regulatory and Development Authority of India

d.

Securities and Exchange Board of India

Discuss
Answer: (b).Government of India Explanation:The reinsurance arrangements of the GIC Re are reviewed annually and approved by the Government of India.
Q82.
Which regulatory authority grants permission to GIC Re as an authorized dealer to arrange remittances of foreign exchange for reinsurance arrangements?

a.

Reserve Bank of India

b.

Insurance Regulatory and Development Authority of India

c.

Securities and Exchange Board of India

d.

Foreign Exchange Management Authority of India

Discuss
Answer: (a).Reserve Bank of India Explanation:Permission is granted by the Reserve Bank of India to GIC Re as an authorized dealer to arrange remittances of foreign exchange in respect of their reinsurance arrangements. This indicates that the Reserve Bank of India is the regulatory authority responsible for granting such permission in the context of reinsurance arrangements involving GIC Re.
Q83.
Which of the following reinsurance commission method is used to calculate the rate of commission based on the loss ratio of the treaty during any one treaty year or during any one underwriting year?

a.

Flat rate of commission

b.

Sliding Scale of commission

c.

Overriding commission

d.

Profit commission

Discuss
Answer: (b).Sliding Scale of commission Explanation:The sliding scale of commission is a reinsurance commission method used to calculate the rate of commission based on the loss ratio of the treaty during any one treaty year or during any one underwriting year. This means that the commission rate varies or slides based on the performance of the treaty, specifically its loss ratio. As the loss ratio increases or decreases, the commission rate is adjusted accordingly.
Q84.
Which of the following reinsurance commission method is used to calculate the rate of commission based on the loss ratio of the treaty during any one treaty year or during any one underwriting year?____________ is an additional percentage payable to a ceding insurer on profitable treaties in accordance with an agreed formula.

a.

Flat rate of commissionOverriding commission

b.

Sliding Scale of commissionBrokerage

c.

Overriding commissionProfit commission

d.

Profit commissionFlat rate commission

Discuss
Answer: (b).Sliding Scale of commissionProfit commission Explanation:The sliding scale of commission is a reinsurance commission method used to calculate the rate of commission based on the loss ratio of the treaty during any one treaty year or during any one underwriting year. This means that the commission rate varies or slides based on the performance of the treaty, specifically its loss ratio. As the loss ratio increases or decreases, the commission rate is adjusted accordingly.Profit commission is an additional percentage payable to a ceding insurer on profitable treaties in accordance with an agreed formula. Profit commission serves as an incentive for ceding insurers to produce profitable business. When the treaty results in a profit, the ceding insurer receives an additional commission based on a predetermined formula or agreement. This encourages the ceding insurer to actively pursue and maintain profitable reinsurance treaties.
Q85.
When a reinsurer receives business as an inward retrocession, the reinsurer will allow the ceding insurer _____________ over and above any share of the original commission that he may pay.

a.

Overriding commission

b.

Brokerage

c.

Profit commission

d.

Flat rate commission

Discuss
Answer: (a).Overriding commission Explanation:When a reinsurer receives business as an inward retrocession, the reinsurer will allow the ceding insurer overriding commission over and above any share of the original commission that he may pay. This means that in the case of inward retrocession, where a reinsurer receives business from another reinsurer, the reinsurer will provide an additional commission known as overriding commission to the ceding insurer. This overriding commission is in addition to any share of the original commission that the reinsurer may pay to the ceding insurer. It serves as an incentive or compensation for the ceding insurer in such reinsurance arrangements.
Q86.
For which of the following types of business will the accounting be rendered on an ‘Underwriting 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: (c).Marine proportional reinsurance Explanation:Accounting method used would depend on the specific characteristics of the reinsurance business. Proportional reinsurance involves sharing risks and premiums between the ceding insurer and the reinsurer based on a predetermined proportion. Marine proportional reinsurance refers to proportional reinsurance specifically applied to marine-related risks.
Q87.
In proportional treaty accounts, who is responsible for preparing the accounts?

a.

Reinsurer

b.

Ceding insurer

c.

Broker

d.

Regulatory bodies

Discuss
Answer: (b).Ceding insurer Explanation:In proportional treaty accounts, the responsibility for preparing the accounts lies with the ceding insurer. The ceding insurer possesses the necessary information regarding premiums, claims paid, reserves released, and retained amounts. As most treaties are "blind" and do not provide individual cession details to the reinsurer, the ceding insurer is responsible for compiling and providing the relevant account information to the reinsurer.
Q88.
What information is typically included in the quarterly or periodical accounts received by the reinsurer in proportional treaty accounts?

a.

Premiums, claims paid, reserves released, and retained amounts

b.

Individual cession details for each treaty

c.

Financial statements of the ceding insurer

d.

Investment income and exchange gains or losses

Discuss
Answer: (a).Premiums, claims paid, reserves released, and retained amounts Explanation:In proportional treaty accounts, the reinsurer receives quarterly or periodical accounts from the ceding insurer. These accounts typically include information such as premiums collected, claims paid, reserves released, and amounts retained by the ceding insurer. This information allows the reinsurer to monitor the development of treaty results and make informed decisions regarding the reinsurance business.
Q89.
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.
Q90.
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.
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