Reinsurance Distributing the Programme Arrangements MCQs

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Q31.
What is a potential danger in accepting a large premium reciprocity from a treaty with low average profitability?

a.

Fluctuations in profit

b.

Decreased net premium

c.

Reduced reserves

d.

Increased tax on profits

Discuss
Answer: (a).Fluctuations in profit Explanation:A potential danger in accepting a large premium reciprocity from a treaty with low average profitability is that the profit is subject to wide fluctuations.
Q32.
What are the advantages of larger premium reciprocity for the ceding insurer?

a.

Creation of larger reserves

b.

Reduction of tax on profits

c.

Increased net premium

d.

All of the above

Discuss
Answer: (d).All of the above Explanation:Larger premium reciprocity for the ceding insurer has advantages such as the creation of larger reserves and reduction of tax on profits, as well as an increase in net premium.
Q33.
What should be done to bring down the net profit ceded when accepting a large premium reciprocity?

a.

Increase profit commission

b.

Decrease profit commission

c.

Increase treaty capacity

d.

Decrease treaty capacity

Discuss
Answer: (a).Increase profit commission Explanation:To bring down the net profit ceded when accepting a large premium reciprocity, the profit commission should be increased.
Q34.
What impact should be considered when examining the terms of a treaty exchange through an intermediary?

a.

Brokerage cost

b.

Tax on profits

c.

Reserves

d.

Profit fluctuations

Discuss
Answer: (a).Brokerage cost Explanation:When examining the terms of a treaty exchange through an intermediary, one should consider the impact of brokerage cost on the result of reciprocal profit from the inward treaty.
Q35.
What can be concluded about the relationship between profitability and premium reciprocity in reciprocal reinsurance trading?

a.

Higher profitability leads to higher premium reciprocity

b.

Higher profitability leads to lower premium reciprocity

c.

There is no direct relationship between profitability and premium reciprocity

d.

Premium reciprocity is solely determined by treaty capacity

Discuss
Answer: (b).Higher profitability leads to lower premium reciprocity Explanation:Higher profitability leads to lower premium reciprocity in reciprocal reinsurance trading.
Q36.
What is the purpose of splitting the surplus treaty into two or three surpluses?

a.

To obtain the best possible commission terms

b.

To generate a sufficient volume of premium

c.

To balance the portfolio

d.

All of the above

Discuss
Answer: (d).All of the above Explanation:Splitting the surplus treaty into two or three surpluses serves the purpose of obtaining the best possible commission terms, generating a sufficient volume of premium, and balancing the portfolio.
Q37.
What information do reinsurers typically want to know about rate levels and claims?

a.

Background information

b.

Underwriting policies

c.

Market experience

d.

Excess of loss treaty details

Discuss
Answer: (a).Background information Explanation:When dealing with higher surpluses, reinsurers typically want to know a great deal of background information, specifically related to rate levels and claims.
Q38.
In the placement of the second surplus treaty, what should be aimed for?

a.

Achieving a wide distribution among several reinsurers

b.

Obtaining the best possible commission terms

c.

Balancing the portfolio

d.

Generating a high volume of premium

Discuss
Answer: (a).Achieving a wide distribution among several reinsurers Explanation:In the placement of the second surplus treaty, one should aim to achieve a wide distribution among several reinsurers.
Q39.
What is the importance of the reinsurer's general business approach in the placement of higher covers?

a.

Co-operation and understanding during claim situations

b.

Determining the premium amount

c.

Balancing the surplus treaty

d.

Establishing commission terms

Discuss
Answer: (a).Co-operation and understanding during claim situations Explanation:The general business approach of the reinsurer is of considerable importance in the placement of higher covers because their co-operation and understanding will be necessary when a claim arises.
Q40.
When might reinsurers agree to waive bordereaux for Auto/Fac covers?

a.

When detailed information about the ceded portfolio is provided

b.

When a large reinsurance capacity is required

c.

When the cover contains only peak risks

d.

When the premium is derived from a limited number of risks

Discuss
Answer: (a).When detailed information about the ceded portfolio is provided Explanation:Even though reinsurers require detailed information about the ceded portfolio for Auto/Fac covers, they may agree to waive bordereaux if such information is provided.
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