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 3 of 6

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Q21.
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.
Q22.
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.
Q23.
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.
Q24.
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.
Q25.
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.
Q26.
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:
Q27.
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.
Q28.
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.
Q29.
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.
Q30.
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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