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 5 of 6

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Q41.
Which of the following statements are correct with respect to technical objectives?

a.

The technical results of the insurer need to be destabilised by reducing fluctuations in claims to the yearly retained account

b.

The risk of suffering a greater liability than permitted by the financial resources in the event of a catastrophe must be maximised

c.

Concentration of risks in any one class of business or geographical area must be reduced

d.

To allow a company to accept risks beyond its normal retention and so ensure that it is placed at a serious disadvantage compared to its competitors

Discuss
Answer: (c).Concentration of risks in any one class of business or geographical area must be reduced Explanation:Technical objectives of reinsurance include stabilizing any fluctuation in the company's annual aggregate claims experience so that wide fluctuations in results from one year to the next are avoided, safeguarding the solvency of an insurer against random fluctuations in the overall claims experience and an accumulation of losses arising out of one event, and reducing concentration of risks in any one class of business or geographical area. Option a is incorrect as the technical results of the insurer need to be stabilized and not destabilized. Option b is incorrect as the objective of reinsurance is to minimize the risk of suffering a greater liability than permitted by the financial resources in the event of a catastrophe. Option d is incorrect as the objective of reinsurance is to allow a company to accept risks beyond its normal retention and so ensure that it is not placed at a serious disadvantage compared to its competitors.
Q42.
“In countries where minimum solvency margins based on net premiums are applied, reinsurance can reduce net premiums.” What does this statement imply?

a.

An insurer can accept an increasing volume of business without requiring a corresponding increase in capital.

b.

An insurer cannot accept an increasing volume of business before requiring a corresponding increase in capital.

c.

An insurer can accept an increasing volume of business after requiring a corresponding increase in capital.

d.

An insurer cannot accept an increasing volume of business after requiring a corresponding increase in capital.

Discuss
Answer: (a).An insurer can accept an increasing volume of business without requiring a corresponding increase in capital. Explanation:Solvency margins are regulatory requirements that specify the amount of capital an insurer must hold in order to conduct business. In some countries, these solvency margins are based on net premiums, which is the amount of premiums an insurer receives after deducting reinsurance premiums. Therefore, if an insurer purchases reinsurance, the amount of net premiums is reduced, which in turn reduces the amount of capital required to meet the solvency margin. This allows the insurer to accept more business without needing to increase its capital.
Q43.
In certain cases, there may arise situations, when substantial gross payments need to be made immediately in respect of risks which are retained marginally. What can be done to eliminate the strain arising from this aspect on invested funds?

a.

A cash loss stability facility is administered in all outward arrangements.

b.

A cash loss recovery facility is administered in all outward arrangements.

c.

Programme design is modified to destabilise cash flow

d.

Programme design is modified to achieve better liquidity management

Discuss
Answer: (b).A cash loss recovery facility is administered in all outward arrangements. Explanation:Situations may arise when substantial gross payments need to be made immediately in respect of risks which are retained marginally. To eliminate the strain arising from this aspect on invested funds, a cash loss recovery facility is administered in all outward arrangements. This facility helps the insurer to keep their well-invested funds intact.
Q44.
A programme design can be successful if its evaluation and follow up exist in full measure. This design and the follow up are based on ____________

a.

Theoretical studies

b.

Transactional studies

c.

Simulation and modeling studies.

d.

Financial studies

Discuss
Answer: (c).Simulation and modeling studies. Explanation:The design and the follow up are based on simulation and modeling studies.
Q45.
How can the reinsurance program aid in preserving the business efforts of the insurer?

a.

By accommodating increasing values due to inflationary trends and improvements in technology

b.

By easily accommodating newer types of cover devised for new developments arising from changes in science and technology

c.

Both a and b

d.

None of the above

Discuss
Answer: (c).Both a and b Explanation:The reinsurance program can aid in preserving the business efforts of the insurer by accommodating increasing values due to inflationary trends and improvements in technology and by easily accommodating newer types of cover devised for new developments arising from changes in science and technology.
Q46.
What is the need to keep the gross account profitable in the reinsurance program?

a.

To reward reinsurers with profits over a period of time

b.

To govern rating levels in the market by underwriting consideration rather than leaving it to market forces

c.

Both a and b

d.

None of the above

Discuss
Answer: (c).Both a and b Explanation:The need to keep the gross account profitable in the reinsurance program is to reward reinsurers with profits over a period of time and to govern rating levels in the market by underwriting consideration rather than leaving it to market forces.
Q47.
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.
Q48.
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.
Q49.
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.
Q50.
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.
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