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 4 of 6

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Q31.
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.
Q32.
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:
Q33.
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.
Q34.
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.
Q35.
What is a good index for measuring the effect of the program on retentions?

a.

The anticipated incurred loss ratio to the gross and net accounts in a class

b.

The commission component of the reinsurance ceded

c.

The additional cost of the excess of loss reinsurance cover

d.

The gross experience of a class concerned

Discuss
Answer: (a).The anticipated incurred loss ratio to the gross and net accounts in a class 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 program on retentions.
Q36.
What is the critical component in determining a large proportion of the balance being generated?

a.

The gross experience of a class concerned

b.

The anticipated incurred loss ratio to the gross and net accounts in a class

c.

The commission component of the reinsurance ceded

d.

The cost of reinsurance cover

Discuss
Answer: (c).The commission component of the reinsurance ceded Explanation:The commission component of the reinsurance ceded is critical in determining a large proportion of the balance being generated.
Q37.
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.
Q38.
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.
Q39.
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.
Q40.
In ________________ 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.

a.

Reciprocal business

b.

Risk booked business

c.

Non risk booked business

d.

Medium size business

Discuss
Answer: (a).Reciprocal business Explanation:In 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.
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