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 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.
Q12.
How can reinsurance minimize the risk of suffering a greater liability than justified by the financial resources in the event of a catastrophe?

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 accumulation of losses arising out of one event

d.

By ensuring a wide spread of risks and reducing the concentration of risks in any one class of business or geographical area

Discuss
Answer: (c).By minimizing the accumulation of losses arising out of one event Explanation:Reinsurance can minimize the risk of suffering a greater liability than justified by the financial resources in the event of a catastrophe by minimizing the accumulation of losses arising out of one event.
Q13.
What is the technical objective of a reinsurance program?

a.

To stabilize the technical results of the insurer / reinsurer by reducing fluctuations in claims to the yearly retained account

b.

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

c.

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

d.

To reduce the probability of ruin at a price acceptable to the company

Discuss
Answer: (a).To stabilize the technical results of the insurer / reinsurer by reducing fluctuations in claims to the yearly retained account Explanation:The technical objective of a reinsurance program is to stabilize the technical results of the insurer / reinsurer by reducing fluctuations in claims to the yearly retained account.
Q14.
What is the objective of a reinsurance program relating to the business efforts of the insurer?

a.

To reduce the concentration of risks in any one class of business or geographical area

b.

To accommodate increasing values due to inflationary trends and improvements in technology

c.

To reward reinsurers with profits over a period of time

d.

To stabilize the insurer's annual aggregate claims experience

Discuss
Answer: (b).To accommodate increasing values due to inflationary trends and improvements in technology Explanation:The objective of a reinsurance program relating to the business efforts of the insurer is to accommodate increasing values due to inflationary trends and improvements in technology, preserve development efforts, and add to the prestige of the insurer/reinsurer.
Q15.
Why is it important to keep the gross account profitable in a reinsurance program?

a.

To reduce the company’s probability of ruin.

b.

To accommodate increasing values due to inflationary trends and improvements in technology.

c.

To reward reinsurers with profits over a period of time.

d.

To govern rating levels in the market by underwriting consideration rather than market forces.

Discuss
Answer: (d).To govern rating levels in the market by underwriting consideration rather than market forces. Explanation:It is important to keep the gross account profitable in a reinsurance program to govern rating levels in the market by underwriting consideration rather than being left to market forces. This helps in rewarding reinsurers with profits over a period of time, whether for the insurer's own inward reciprocal business or for reinsurance as a cover requirement.
Q16.
What is the primary objective of reinsurance?

a.

To reduce the company's probability of ruin

b.

To stabilize any fluctuation in the insurer's annual aggregate claims experience

c.

To allow an insurer to accept risks beyond its normal retention and not be placed at a serious disadvantage compared to its competitors

d.

All of the above

Discuss
Answer: (d).All of the above Explanation:The primary objectives of reinsurance are to reduce the company's probability of ruin, stabilize fluctuations in claims experience, and allow the insurer to accept risks beyond its normal retention to compete with its competitors.
Q17.
What is the relevance of reinsurance market conditions in reinsurance program design?

a.

It helps in analyzing exposure to various perils

b.

It influences retentions, cover limits, and reinsurance costs

c.

It helps in ensuring acceptability of the program to reinsurers

d.

It helps in deciding on the geographical location of operations

Discuss
Answer: (c).It helps in ensuring acceptability of the program to reinsurers Explanation:Reinsurance market conditions are relevant in reinsurance program design as it helps in ensuring acceptability of the program to reinsurers. This is important because the reinsurers are the ones who will provide the necessary coverage to the insurer in case of a loss. If the program is not acceptable to the reinsurers, it will be difficult for the insurer to get the required coverage. Therefore, it is important to design the reinsurance program in a way that is acceptable to the reinsurers. Option c correctly reflects this relevance. Options a, b, and d are not directly related to reinsurance market conditions.
Q18.
The anticipated incurred loss ratio to the gross and net accounts in a class are very good indices for measuring the effect of the programme on retentions. Which of the following is true in the context of gross direct account?

a.

The gross direct account is expected to sustain its loss ratio over a period of time.

b.

The gross direct account is expected to be subject to as wide a variation as the exposures permit.

c.

In good years the gross direct account will be relatively less and generate revenue for reinsurers.

d.

In bad years the gross direct account will be relatively higher and generate losses for reinsurers.

Discuss
Answer: (b).The gross direct account is expected to be subject to as wide a variation as the exposures permit. Explanation:The anticipated incurred loss ratio to the gross and net accounts in a class are very good indices for measuring the effect of the programme on retentions. The gross direct account can be subject to wide variations depending on the exposures involved. Therefore, option b is the correct answer.
Q19.
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.
Q20.
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.
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