Reinsurance Distributing the Programme Arrangements MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on Reinsurance Distributing the Programme Arrangements, 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 Distributing the Programme Arrangements MCQs are designed to help you grasp the core concepts and excel in solving problems.

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Reinsurance Distributing the Programme Arrangements MCQs | Page 3 of 10

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Q21.
How does a Risk Excess cover operate?

a.

It provides retrocession of reinsurance accounts

b.

It combines quota-share and excess-of-loss features

c.

It operates similar to a facultative but on a non-proportional basis

d.

It secures a profit advantage for direct insurers

Discuss
Answer: (c).It operates similar to a facultative but on a non-proportional basis Explanation:A Risk Excess cover operates similar to a facultative but on a non-proportional basis.
Q22.
What is the purpose of a facultative obligatory treaty?

a.

To provide primary reinsurance capacity

b.

To protect against weak reinsurance market conditions

c.

To balance the exposure and premium in the aviation market

d.

To reduce costs by using less proportional arrangements

Discuss
Answer: (b).To protect against weak reinsurance market conditions Explanation:A facultative obligatory treaty can be placed in weak reinsurance market conditions but is not adequate to be relied upon for primary reinsurance capacity.
Q23.
Which type of treaty provides reinsurance protection on a layered basis?

a.

Surplus treaty

b.

Quota share treaty

c.

Excess of loss treaty

d.

Variable quota share treaty

Discuss
Answer: (c).Excess of loss treaty Explanation:Excess of loss treaties, both working and catastrophe covers, are arranged on a layered basis to provide reinsurance protection to the retained business.
Q24.
How are the lower layers of an excess of loss treaty rated?

a.

On exposure

b.

On premium

c.

On loss ratio

d.

On cover extent

Discuss
Answer: (a).On exposure Explanation:The lower layers of an excess of loss treaty are rated on exposure.
Q25.
What does a stop loss ratio reinsurance arrangement aim to protect?

a.

Against widely dispersed risks in agriculture

b.

Against exceeding an agreed loss ratio in a portfolio of net retained business

c.

Against weak reinsurance market conditions

d.

Against unbalanced exposure and premium in the aviation market

Discuss
Answer: (b).Against exceeding an agreed loss ratio in a portfolio of net retained business Explanation:A stop loss ratio reinsurance arrangement aims to protect a whole portfolio of net retained business from exceeding an agreed loss ratio to ensure profit to the insurer.
Q26.
Why do ceding insurers value reciprocal reinsurance trading?

a.

To protect the treaty portfolio from hazardous risks

b.

To balance the treaty exchanges and maintain stability in underwriting surplus

c.

To increase net premiums and net profits

d.

To obtain the best possible terms for their business

Discuss
Answer: (b).To balance the treaty exchanges and maintain stability in underwriting surplus Explanation:Ceding insurers value reciprocal reinsurance trading because it helps balance the treaty exchanges and ensures greater stability in underwriting surplus.
Q27.
What are the benefits derived from a reciprocal exchange of treaties?

a.

Increased net premiums and net profits

b.

Improved balance of the net retained portfolio and stability in underwriting surplus

c.

Higher treaty capacity and lower commission rates

d.

Both a and b

Discuss
Answer: (d).Both a and b Explanation:The two benefits derived from a reciprocal exchange of treaties are increased net premiums and net profits, as well as an improved balance of the net retained portfolio and greater stability in underwriting surplus.
Q28.
Which type of insurers are able to exchange business against their first surplus property treaty?

a.

Insurers with substantial property premiums

b.

Insurers with a strong underwriting surplus

c.

Insurers with a diversified portfolio

d.

Insurers with high-risk exposure

Discuss
Answer: (a).Insurers with substantial property premiums Explanation:Insurers with a substantial property premium are able to exchange business against their first surplus property treaty.
Q29.
In which lines of business is reciprocal reinsurance trading widely prevalent?

a.

Fire and hull lines of business

b.

Property and casualty lines of business

c.

Life and health lines of business

d.

Specialty lines of business

Discuss
Answer: (a).Fire and hull lines of business Explanation:Reciprocal reinsurance trading is widely prevalent in the fire and hull lines of business.
Q30.
In which lines of business is reciprocal reinsurance trading widely prevalent?How does premium reciprocity vary based on profitability in reciprocal reinsurance trading?

a.

Fire and hull lines of businessIt remains constant regardless of profitability

b.

Property and casualty lines of businessIt decreases as profitability increases

c.

Life and health lines of businessIt increases as profitability decreases

d.

Specialty lines of businessIt is determined by the type of treaty being exchanged

Discuss
Answer: (b).Fire and hull lines of businessIt increases as profitability decreases Explanation:Reciprocal reinsurance trading is widely prevalent in the fire and hull lines of business.Premium reciprocity can exceed 100% in markets with lower average profitability. A ceding insurer with a treaty of 10% profitability can expect to receive 200% premium reciprocity from a reinsurer with a treaty of 5% profitability.
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