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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Q41.
Which of the following treaty is used mainly for small accounts where the extra administrative burden of a surplus can be quite large?

a.

Surplus treaty

b.

Quota share treaty

c.

Facultative treaty

d.

Excess of loss treaty

Discuss
Answer: (b).Quota share treaty Explanation:The quota share treaty is used mainly for small accounts where the extra administrative burden of a surplus would be too great. This treaty provides a wider spread for the net retained portfolio of the insurer with an improved balance, ensuring stability in profits. Giant direct insurers cede out a quota share of their retained account against reciprocal reinsurance acceptance from world markets. This implies that the quota share treaty is suitable for smaller accounts and helps in spreading the risk and maintaining balance for the insurer.
Q42.
Which of the following measures is important for improving the national underwriting capacity and retentions?

a.

Participation in local market pool

b.

Cessions to international reinsurance organizations

c.

Intensive exchange of reinsurance business with foreign insurers

d.

Promotion of individual reinsurance programs

Discuss
Answer: (a).Participation in local market pool Explanation:Participation in pools, cessions on an obligatory basis to national reinsurance organizations, and intensive exchange of reinsurance business among insurers within the country are important measures for improving the national underwriting capacity and retentions. These measures contribute to building up the country's market retention and reducing dependence on foreign reinsurance markets. Therefore, option a is the correct answer.
Q43.
What is the primary purpose of participating in pools and ceding on an obligatory basis to national reinsurance organizations?

a.

To obtain favorable commission terms

b.

To reduce reliance on foreign reinsurance markets

c.

To increase the profitability of reinsurance programs

d.

To encourage competition among insurers

Discuss
Answer: (b).To reduce reliance on foreign reinsurance markets Explanation:Participating in pools and ceding on an obligatory basis to national reinsurance organizations are important measures to improve the national underwriting capacity and retentions. These measures aim to reduce the dependence on foreign reinsurance markets for expertise and increase the country's self-sufficiency in reinsurance. Therefore, option b is the correct answer.
Q44.
Which entity is typically the recipient of obligatory cessions in several countries?

a.

Collective organization of all insurers

b.

Government body

c.

International reinsurance organization

d.

Independent private company

Discuss
Answer: (a).Collective organization of all insurers Explanation:In several countries, the national reinsurer receiving the obligatory cession is either a collective organization of all insurers or a government body. These collective organizations or government bodies play a role in the development of the national reinsurer and contribute to the improvement of the national reinsurance market. Therefore, option a is the correct answer.
Q45.
How does participation in pools and exchange of reinsurance business benefit smaller insurers in specialized classes of business?

a.

It provides financial assistance to smaller insurers

b.

It reduces competition among smaller insurers

c.

It enables specialization in specific classes of business

d.

It increases the administrative burden on smaller insurers

Discuss
Answer: (c).It enables specialization in specific classes of business Explanation:National reinsurance organizations developed through participation in pools and intensive exchange of reinsurance business can provide assistance within the country to smaller insurers in specialized classes of business. This implies that smaller insurers can benefit from the expertise and support provided by the national reinsurance organizations, enabling them to specialize and excel in specific classes of business. Therefore, option c is the correct answer.
Q46.
What is one of the challenges faced by insurers when participating in pooling arrangements?

a.

Fluctuating profit margins

b.

Lack of transparency in pool operations

c.

Inadequate commission terms

d.

Difficulties in portfolio management

Discuss
Answer: (c).Inadequate commission terms Explanation:Insurers participating in pooling arrangements may find it challenging to cede business to the pool at normal commission terms and receive back a less profitable portfolio of the pooled business at the same commission terms or with an additional overriding commission. This implies that the commission terms in the pool may not adequately compensate insurers for the profitability of their ceded business.
Q47.
Why do some countries adopt differential commission terms for insurers' cessions to pools?

a.

To discourage insurers from participating in pooling arrangements

b.

To ensure a reasonable balance between profit ceded and received

c.

To incentivize insurers with more profitable portfolios

d.

To maximize the profitability of the pool

Discuss
Answer: (b).To ensure a reasonable balance between profit ceded and received Explanation:In some countries, insurers have differential commission terms for their cessions to pools to maintain a reasonable balance between the profit ceded and the profit received over time. This approach aims to address the disparity in profitability between insurers' portfolios and the pooled business. Therefore, option b) is the correct answer.
Q48.
Why do some countries adopt differential commission terms for insurers' cessions to pools?Why do smaller insurers derive long-term benefits from participating in pools, despite potential sacrifices?

a.

To discourage insurers from participating in pooling arrangementsThey receive higher commission rates for their cessions

b.

To ensure a reasonable balance between profit ceded and receivedThey gain access to more profitable portfolios

c.

To incentivize insurers with more profitable portfoliosThey are exempted from ceding business to the pool

d.

To maximize the profitability of the poolThey contribute to the larger national interest

Discuss
Answer: (b).To ensure a reasonable balance between profit ceded and receivedThey contribute to the larger national interest Explanation:In some countries, insurers have differential commission terms for their cessions to pools to maintain a reasonable balance between the profit ceded and the profit received over time. This approach aims to address the disparity in profitability between insurers' portfolios and the pooled business. Therefore, option b) is the correct answer.Participation in pools for companies with more profitable portfolios involves some sacrifice, which is considered worthwhile in the larger national interest. This suggests that smaller insurers derive long-term benefits from participating in pools by contributing to the overall development and improvement of the national reinsurance market. Therefore, option d is the correct answer.
Q49.
What is the primary reason insurers accept the sacrifice involved in participating in pools?

a.

To maximize their individual profitability

b.

To maintain control over their portfolios

c.

To achieve a balance between ceded and received profit

d.

To reduce their dependence on foreign reinsurance markets

Discuss
Answer: (c).To achieve a balance between ceded and received profit Explanation:Insurers accept the sacrifice involved in participating in pools to ensure a reasonable balance between the profit ceded and the profit received over a period. This suggests that the goal is to achieve equilibrium between the profitability of their ceded business and the pooled business. Therefore, option c is the correct answer.
Q50.
What is the purpose of group underwriting and retention?

a.

To increase individual retention levels

b.

To form market pools for redistribution of risks

c.

To combine the capacities of all group companies

d.

To reduce the administrative burden of reinsurance

Discuss
Answer: (c).To combine the capacities of all group companies Explanation:Group underwriting involves combining the retention levels of individual insurers that have common management or ownership. The purpose is to utilize the combined capacity of all the group companies and operate a group reinsurance program. Therefore, option c is the correct answer.
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