Retentions MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on Retentions, 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 Retentions 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 Retentions mcq questions that explore various aspects of Retentions problems. Each MCQ is crafted to challenge your understanding of Retentions 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 Retentions MCQs are your pathway to success in mastering this essential IC85 Reinsurance Management topic.

Note: Each of the following question comes with multiple answer choices. Select the most appropriate option and test your understanding of Retentions. You can click on an option to test your knowledge before viewing the solution for a MCQ. Happy learning!

So, are you ready to put your Retentions knowledge to the test? Let's get started with our carefully curated MCQs!

Retentions MCQs | Page 2 of 24

Discover more Topics under IC85 Reinsurance Management

Q11.
What factors influence retention in insurance?

a.

The insurer's assets, capital, and free reserves

b.

The amount of premium paid by the policyholder

c.

The degree of fluctuation in the portfolio of risks

d.

Both a and c

Discuss
Answer: (d).Both a and c Explanation:The insurer's assets, capital, and free reserves, as well as the degree of fluctuation in the portfolio of risks, influence retention in insurance.
Q12.
What is the aim of determining the degree of acceptable fluctuation in a portfolio?

a.

To eliminate fluctuation completely

b.

To maintain the same theoretical estimate of acceptable fluctuation

c.

To seek diminution in fluctuation

d.

To increase the retention proportionately as the portfolio grows

Discuss
Answer: (c).To seek diminution in fluctuation Explanation:The aim of determining the degree of acceptable fluctuation is to seek diminution in fluctuation.
Q13.
The concept of balance in reinsurance refers to:

a.

The degree of acceptable fluctuation in a portfolio of risks

b.

The elimination of all fluctuation in a portfolio of risks

c.

The use of 100% reinsurance to finance all risks

d.

The need to retain all risks within the portfolio

Discuss
Answer: (a).The degree of acceptable fluctuation in a portfolio of risks Explanation:Defines balance as the stability of a portfolio as it grows and in contrast to the relative volatility of a small portfolio. The aim is not to eliminate fluctuation but to determine the degree of acceptable fluctuation.
Q14.
The reinsurance manager must establish his retention and reinsurance program to:

a.

Limit fluctuations to a degree that is acceptable

b.

Eliminate all fluctuations in the portfolio

c.

Increase retention proportionately as the portfolio grows

d.

Seek diminution in fluctuations in the portfolio

Discuss
Answer: (a).Limit fluctuations to a degree that is acceptable Explanation:The reinsurance manager must establish his retention and reinsurance program in such a way as to limit the fluctuations to a degree that is acceptable.
Q15.
Retention is assessed in the light of the need to:

a.

Preserve the asset base and generate adequate profit

b.

Eliminate all risk from the portfolio

c.

Take on as much risk as possible

d.

Reduce the portfolio of risks

Discuss
Answer: (a).Preserve the asset base and generate adequate profit Explanation:Retention is assessed in the light of the need to preserve the asset base and generate adequate profit.
Q16.
The concept of an optimum retention refers to:

a.

A retention level acceptable to diverse interests

b.

The elimination of all risk from the portfolio

c.

A retention level that maximizes profits

d.

A retention level that eliminates fluctuations

Discuss
Answer: (a).A retention level acceptable to diverse interests Explanation:There is no concept of a correct retention, but only an optimum retention acceptable to the diverse interests.
Q17.
What is the purpose of setting cash loss limit for proportional reinsurance arrangements?

a.

To increase return on investment

b.

To limit exposure to capital loss

c.

To make cash available when estimated loss payout exceeds available cash

d.

To determine the degree of acceptable fluctuation

Discuss
Answer: (c).To make cash available when estimated loss payout exceeds available cash Explanation:The Reinsurance Manager sets cash loss limit for his proportional reinsurance arrangements to make available cash when the immediate loss pay out is estimated to exceed available cash.
Q18.
What is the primary goal of every insurer with respect to their capital?

a.

To generate adequate profit

b.

To limit the fluctuations

c.

To maximise return on investment

d.

To preserve the asset base

Discuss
Answer: (c).To maximise return on investment Explanation:Every insurer wants to maximise the return from his capital which is invested in financial assets.
Q19.
Which type of investment is likely to yield higher interest but may result in illiquid asset or loss of higher interest due to premature closure?

a.

Long term investments

b.

Stock market investments

c.

Investment in liquid assets

d.

None of the above

Discuss
Answer: (a).Long term investments Explanation:Investments of a long term nature are likely to yield higher interest but such an arrangement would mean illiquid asset or loss of higher interest due to premature closure.
Q20.
Why is investment in liquid assets important for insurers?

a.

To increase return on investment

b.

To limit exposure to capital loss

c.

To have sufficient liquid assets to pay for claims

d.

To leverage capital gain for a better return

Discuss
Answer: (c).To have sufficient liquid assets to pay for claims Explanation:Liquid cash are important, as it can be extremely embarrassing for an insurer to have insufficient liquid assets with which to pay a claim.
Page 2 of 24