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 6 of 6

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Q51.
What is the basis for design and follow-up of a reinsurance programme?

a.

Corporate philosophy of the insurer

b.

Simulation and modeling studies

c.

New thrusts on the business front

d.

Better liquidity management

Discuss
Answer: (b).Simulation and modeling studies Explanation:The design and follow-up of a reinsurance programme are based on simulation and modeling studies.
Q52.
What is the purpose of a reinsurance programme for insurance business?

a.

To manifest various interests that form part of the corporate philosophy of an insurer

b.

To protect inward reinsurance

c.

To administer cash loss recovery facility

d.

To safeguard solvency against random fluctuations in overall claims experience and accumulation of losses

Discuss
Answer: (d).To safeguard solvency against random fluctuations in overall claims experience and accumulation of losses Explanation:The purpose of a reinsurance programme for insurance business 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.
Q53.
What is the significance of follow-up in a reinsurance programme?

a.

To modify programme design

b.

To safeguard solvency against random fluctuations in overall claims experience and accumulation of losses

c.

To administer better systems for reporting and underwriting

d.

All of the above

Discuss
Answer: (d).All of the above Explanation:Follow-up in a reinsurance programme takes various methods and forms, including modifications to programme design, better systems for reporting and underwriting, new thrusts on the business front, better liquidity management, and a renewed drive for optimum retained results.
Q54.
Which of the following is not a primary objective of reinsurance?

a.

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

b.

To secure technical assistance in rating, terms and conditions of cover and processing of claims

c.

To stabilise any fluctuation in the company’s annual aggregate claims experience so that wide fluctuations in results from one year to the next are avoided

d.

To ensure that it is not placed at a serious disadvantage compared to its competitors

Discuss
Answer: (b).To secure technical assistance in rating, terms and conditions of cover and processing of claims Explanation:To secure technical assistance in rating, terms and conditions of cover and processing of claims is not a primary objective of reinsurance. While it may be a secondary benefit, the primary objectives of reinsurance are 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, to stabilise any fluctuation in the company's annual aggregate claims experience, and to ensure that the insurer is not placed at a serious disadvantage compared to its competitors.
Q55.
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.
Q56.
“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.
Q57.
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.
Q58.
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.
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