Reinsurance Program Design MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on Reinsurance Program Design, 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 Program Design 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 Program Design mcq questions that explore various aspects of Reinsurance Program Design problems. Each MCQ is crafted to challenge your understanding of Reinsurance Program Design 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 Program Design MCQs are your pathway to success in mastering this essential IC85 Reinsurance Management topic.

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Reinsurance Program Design MCQs | Page 2 of 6

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Q11.
How can reinsurance be used to finance growth for a newly formed insurance company?

a.

By reducing net premiums so that the insurer can accept an increasing volume of business without requiring a corresponding increase in capital

b.

By maximizing net retention in a country which places emphasis on conservation of foreign exchange

c.

By planning for reciprocal inward reinsurance to optimize net retentions

d.

Both a and b

Discuss
Answer: (a).By reducing net premiums so that the insurer can accept an increasing volume of business without requiring a corresponding increase in capital Explanation:Reinsurance can be used to finance growth for a newly formed insurance company by reducing net premiums so that the insurer can accept an increasing volume of business without requiring a corresponding increase in capital.
Q12.
What is the ultimate objective of the reinsurance program?

a.

To optimize retentions and build up capacity

b.

To stabilize fluctuations in claims experience

c.

To allow the insurer to accept risks beyond its normal retention to compete with its competitors

d.

None of the above

Discuss
Answer: (a).To optimize retentions and build up capacity Explanation:The ultimate objective of the reinsurance program is to optimize retentions and build up capacity. The other options are primary and other objectives of the reinsurance program, but not as the ultimate objective.
Q13.
What is the purpose of obtaining participations in the portfolio of risks of other insurers / reinsurers?

a.

To diversify the net portfolio of the insurer

b.

To reduce the cost of reinsurance

c.

To secure technical assistance from other insurers

d.

None of the above

Discuss
Answer: (a).To diversify the net portfolio of the insurer Explanation:Obtaining participations in the portfolio of risks of other insurers / reinsurers helps in broadening the spread of the net portfolio of the insurer and reducing concentration risks.
Q14.
What is the importance of a good relationship between an insurer and its reinsurers?

a.

It ensures the cheapest available sources of reinsurance are used

b.

It helps to improve the insurer's credit rating

c.

It ensures the reinsurance programme is technically viable, stable and administratively simple

d.

It helps to ensure continuity, the right philosophy of business, friendship and understanding with the reinsurers

Discuss
Answer: (d).It helps to ensure continuity, the right philosophy of business, friendship and understanding with the reinsurers Explanation:It is important for an insurer to have a good relationship with its reinsurers to ensure continuity, the right philosophy of business, friendship, and understanding. This is because good relationships with reinsurers help to provide effective reinsurance support.
Q15.
What is the purpose of reinsurance?

a.

To reduce losses

b.

To make the road smoother

c.

To secure technical assistance

d.

To handle a new class of business separately from the general net account

Discuss
Answer: (a).To reduce losses Explanation:The purpose of reinsurance is to provide support to insurers in the event of losses. Reinsurance does not reduce losses but rather smooths out their effect on the insurer.
Q16.
What is the importance of addressing the underlying problem of inadequate rates of direct business?

a.

It ensures that the shock absorbers do not become worn out

b.

It helps to secure successful operation of the insurer with effective reinsurance support

c.

It helps to improve the insurer's credit rating

d.

None of the above

Discuss
Answer: (b).It helps to secure successful operation of the insurer with effective reinsurance support Explanation:Addressing the underlying problem of inadequate rates of direct business helps to secure successful operation of the insurer with effective reinsurance support. This is because reinsurance alone cannot solve the problem of inadequate rates of direct business, and the insurer needs to address this issue to ensure its long-term success.
Q17.
The primary objective of reinsurance is that it should reduce the insurer’s probability of ‘ruin’ at a price acceptable to it . In what context is the word ‘ruin’ used by an actuary?

a.

Loss

b.

Bankruptcy

c.

Deficit

d.

Debit

Discuss
Answer: (b).Bankruptcy Explanation:In actuarial science, the term 'ruin' is used to describe the state of financial insolvency or bankruptcy for an insurance company. It refers to a situation where an insurer's losses exceed its available capital and reserves, leading to the inability to pay claims and obligations to policyholders. The primary objective of reinsurance is to reduce the probability of such ruin by transferring some of the risk to other insurance companies, at a price that is acceptable to the ceding insurer.
Q18.
What is the aim of Gross to Net evaluations?

a.

To reveal changes in experience to the gross account only

b.

To even out wide fluctuations in the net direct business only

c.

To even out wide fluctuations in the gross direct business by stabilising claims experience in the net retained account

d.

To reveal the changes in experience to the net retained account only

Discuss
Answer: (c).To even out wide fluctuations in the gross direct business by stabilising claims experience in the net retained account Explanation:
Q19.
In the context of commission earned on ceded business, what decision has to be made?

a.

Whether to bear a risk by retaining more or passing the risk and earning a safe additional commission

b.

Whether to bear a risk by passing the risk and earning a safe additional commission

c.

Whether to retain more risk and earn a safe additional commission

d.

None of the above

Discuss
Answer: (a).Whether to bear a risk by retaining more or passing the risk and earning a safe additional commission Explanation:In the context of commission earned on ceded business, the decision is between bearing a risk by retaining more or passing the risk and earning a safe additional commission.
Q20.
What is the importance of the gross experience of a class concerned?

a.

It determines the additional cost of excess of loss reinsurance cover

b.

It determines the anticipated incurred loss ratio to the gross and net accounts

c.

It determines the commission earned on ceded business

d.

It determines the types of risks that should be reinsured

Discuss
Answer: (b).It determines the anticipated incurred loss ratio to the gross and net accounts Explanation:The gross experience, over a period of say five years, of the class concerned is one of the important basis which determines the anticipated incurred loss ratio to the gross and net accounts in a class.
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