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.
What is the purpose of ceding arrangements in reinsurance?

a.

To improve the combined local retentions

b.

To increase the cost of reinsuring

c.

To reduce the adequacy of cover for the gross account

d.

To generate good reciprocal outward business

Discuss
Answer: (a).To improve the combined local retentions Explanation:Ceding arrangements are used to improve the combined local retentions and reduce the cost of reinsuring, while ensuring adequate cover for the gross account.
Q12.
How should reinsurance cessations be evaluated for outward arrangements?What factors should be considered when determining the economics of each ceding arrangement?

a.

By evaluating the risks on the basis of their loss ratiosCommissions obtained under each arrangement and the additional infrastructure involved in its administration

b.

By grouping the risks into their typesTypes of risks ceded and their loss ratios

c.

By assessing the commissions obtained under each arrangementReciprocal business and treaty balance

d.

By studying the additional infrastructure involved in its administrationSmall, medium, and large sized risks

Discuss
Answer: (a).By evaluating the risks on the basis of their loss ratiosCommissions obtained under each arrangement and the additional infrastructure involved in its administration Explanation:Reinsurance cessations for outward arrangements should be evaluated by assessing the composition of risks ceded to each arrangement on the basis of their loss ratios.The economics of each ceding arrangement should be determined by considering the commissions obtained under each arrangement and the additional infrastructure involved in its administration.
Q13.
How should reinsurance cessations be evaluated for outward arrangements?

a.

By evaluating the risks on the basis of their loss ratios

b.

By grouping the risks into their types

c.

By assessing the commissions obtained under each arrangement

d.

By studying the additional infrastructure involved in its administration

Discuss
Answer: (a).By evaluating the risks on the basis of their loss ratios Explanation:Reinsurance cessations for outward arrangements should be evaluated by assessing the composition of risks ceded to each arrangement on the basis of their loss ratios.
Q14.
What is needed for a ceding arrangement for reciprocal business?

a.

A mix of risks producing a broad based premium and giving a good treaty balance, yielding fairly sustained positive results over a period of time

b.

A mix of risks producing a narrow based premium and giving a poor treaty balance, yielding fairly sustained negative results over a period of time

c.

A mix of risks producing a broad based premium and giving a poor treaty balance, yielding fairly sustained positive results over a period of time

d.

A mix of risks producing a narrow based premium and giving a good treaty balance, yielding fairly sustained positive results over a period of time

Discuss
Answer: (a).A mix of risks producing a broad based premium and giving a good treaty balance, yielding fairly sustained positive results over a period of time Explanation:For a ceding arrangement for reciprocal business, a mix of risks producing a broad based premium and giving a good treaty balance, yielding fairly sustained positive results over a period of time is needed.
Q15.
What is the purpose of reinsurance?

a.

To generate reciprocal business

b.

To spread risks among insurers

c.

To reduce the cost of reinsuring

d.

To ensure adequate cover for the gross account

Discuss
Answer: (b).To spread risks among insurers Explanation:The purpose of reinsurance is to spread risks among the community of insurers who can support each other in bad times.
Q16.
Why is it necessary to review the working of reinsurance arrangements each year?

a.

To ensure adequate cover for the gross account

b.

To generate an increasingly good inward reciprocity

c.

To reduce the cost of reinsuring

d.

To spread risks among the community of insurers

Discuss
Answer: (b).To generate an increasingly good inward reciprocity Explanation:It is necessary to review the working of reinsurance arrangements each year to generate an increasingly good inward reciprocity with each passing year.
Q17.
What is the basis for determining the economics of each reinsurance arrangement?

a.

The composition of risks ceded to each arrangement based on their loss-ratios

b.

The number of ceding arrangements

c.

The size of the insurance company

d.

The frequency of losses

Discuss
Answer: (a).The composition of risks ceded to each arrangement based on their loss-ratios Explanation:The basis for determining the economics of each reinsurance arrangement is the composition of risks ceded to each arrangement evaluated on the basis of their loss-ratios.
Q18.
What is the primary objective of a reinsurance program?

a.

To increase the company’s probability of ruin

b.

To stabilize fluctuation in the insurer’s annual aggregate claims experience

c.

To increase concentration of risks in one class of business or geographical area

d.

To minimize the risk of suffering a greater liability than justified by the financial resources in the event of a catastrophe

Discuss
Answer: (b).To stabilize fluctuation in the insurer’s annual aggregate claims experience Explanation:The primary objective of a reinsurance program is to stabilize any fluctuation in the insurer’s annual aggregate claims experience so that wide fluctuations in results from one year to the next are avoided.
Q19.
What is the role of reinsurance in safeguarding the solvency of an insurer?

a.

It reduces the company's probability of ruin at a price acceptable to the company

b.

It stabilizes fluctuation in the insurer's annual aggregate claims experience

c.

It allows an insurer to accept risks beyond its normal retention

d.

It increases the concentration of risks in any one class of business or geographical area

Discuss
Answer: (a).It reduces the company's probability of ruin at a price acceptable to the company Explanation:The role of reinsurance is to safeguard the solvency of an insurer against random fluctuations in the overall claims experience and an accumulation of losses arising out of one event by reducing the company's probability of ruin at a price acceptable to the company.
Q20.
How can reinsurance be used to allow an insurer to accept risks beyond its normal retention?

a.

By stabilizing the insurer's annual aggregate claims experience

b.

By reducing the concentration of risks in any one class of business or geographical area

c.

By minimizing the risk of suffering a greater liability than justified by the financial resources in the event of a catastrophe

d.

By ceding a portion of the risk to the reinsurer and ensuring that it is not placed at a serious disadvantage compared to its competitors

Discuss
Answer: (d).By ceding a portion of the risk to the reinsurer and ensuring that it is not placed at a serious disadvantage compared to its competitors Explanation:Reinsurance can be used to allow an insurer to accept risks beyond its normal retention and so ensure that it is not placed at a serious disadvantage compared to its competitors by ceding a portion of the risk to the reinsurer.
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