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 4 of 24

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Q31.
Why might an insurer consider reinsuring as much as possible during times when the supply of reinsurance exceeds demand?

a.

They can reinsure at terms which are so advantageous to them

b.

They want to provoke reinsurers to require higher retentions

c.

They want to maintain an acceptable degree of fluctuation of results

d.

They want to earn higher return on their investment portfolio

Discuss
Answer: (a).They can reinsure at terms which are so advantageous to them Explanation:During times when the supply of reinsurance exceeds demand, an insurer may be able to reinsure at terms which are so advantageous to them that they may consider it a shrewd financial move to reinsure as much as possible.
Q32.
What is the purpose of "solvency margin" regulation?

a.

To ensure that an insurer's liabilities are not excessive in proportion to their assets

b.

To determine which assets are allowable for calculation of solvency margin

c.

To stipulate certain minimum rules with reference to reserves

d.

To compel an insurer to adjust its retention upwards

Discuss
Answer: (a).To ensure that an insurer's liabilities are not excessive in proportion to their assets Explanation:Solvency margin regulation ensures that an insurer's liabilities are not excessive in proportion to their assets.
Q33.
What happens if an insurer invests in stock market investments?

a.

The cost of administration increases and exposure to capital loss increases

b.

The insurer earns a higher return on their investment portfolio

c.

The insurer is able to reinsure at terms which are so advantageous to them

d.

The insurer's retention effectively falls back

Discuss
Answer: (a).The cost of administration increases and exposure to capital loss increases Explanation:Investment in the stock market increases the cost of administration and exposure to capital loss.
Q34.
What is the purpose of using stock market investments to leverage capital gain?

a.

To increase the cost of administration

b.

To increase the exposure to capital loss

c.

To decrease the return from the investment portfolio

d.

To earn a better return from the investment portfolio

Discuss
Answer: (d).To earn a better return from the investment portfolio Explanation:Stock market investments can increase an investor's exposure to capital loss and the cost of administration. However, investors can earn higher returns depending on their risk-taking ability. As a result, using stock market investments to leverage capital gain can help achieve a better return from the investment portfolio. This is because the stock market can provide higher returns than other investment options, such as bonds or real estate, but it also involves more risk. By investing in the stock market, investors can potentially earn higher returns on their investments and leverage their capital gain.
Q35.
If management sets high retention limit , then ____________

a.

They may find they are ceding too large a part of their premium income to their reinsurers.

b.

They may find they are ceding too small a part of their premium income to their reinsurers.

c.

They expose themselves to retaining more when claims occur.

d.

They expose themselves to retaining less when claims occur.

Discuss
Answer: (c).They expose themselves to retaining more when claims occur. Explanation:When management sets a high retention limit, it means that they have decided to retain a larger portion of the risk on their own instead of passing it on to reinsurers. This can result in the insurer being exposed to retaining more when claims occur, as they will be responsible for a greater portion of the losses. This decision can be beneficial if the insurer has confidence in their ability to manage and price the risk effectively, but it also exposes them to potentially larger losses if their assumptions are incorrect. Option a is incorrect because if management sets a high retention limit, they are ceding a smaller portion of their premium income to their reinsurers, not a larger portion. Option b is also incorrect for the same reason. Option d is incorrect because a high retention limit means that the insurer is retaining more risk, not less.
Q36.
What is retention in insurance?

a.

The combination of financial consequences of risk and event based losses.

b.

The transfer of risk to a reinsurer.

c.

The ability of an insurer to pay claims.

d.

None of the above

Discuss
Answer: (a).The combination of financial consequences of risk and event based losses. Explanation:Retention can be defined as a combination of the financial consequences of risk and event based losses.
Q37.
What is the role of an actuary in managing retention?

a.

To certify solvency of the insurer to the regulator.

b.

To sell insurance policies.

c.

To handle claims.

d.

None of the above

Discuss
Answer: (a).To certify solvency of the insurer to the regulator. Explanation:The actuary plays a determining role in managing retention by certifying the solvency of the insurer to the regulator.
Q38.
What are the two types of retention that need to be managed?

a.

Per Event and Per Risk

b.

Per Policy and Per Claim

c.

Per Location and Per Coverage

d.

None of the above

Discuss
Answer: (a).Per Event and Per Risk Explanation:There are two types of retention that need to be managed: Per Event and Per Risk.
Q39.
How is Per Event retention managed?

a.

Through reasonable estimation of financial consequences and by allowing a catastrophe reserve for funds to accumulate.

b.

By transferring the risk to a reinsurer.

c.

By denying claims.

d.

None of the above

Discuss
Answer: (a).Through reasonable estimation of financial consequences and by allowing a catastrophe reserve for funds to accumulate. Explanation:Per Event retention is managed through reasonable estimation of financial consequences and by allowing a catastrophe reserve for funds to accumulate.
Q40.
What are some examples of event-based exposures?

a.

Possibility of accumulation within one branch and between branches.

b.

Possibility of accumulation within one policy and between policies.

c.

Possibility of accumulation within one location and between locations.

d.

None of the above

Discuss
Answer: (a).Possibility of accumulation within one branch and between branches. Explanation:Examples of event-based exposures include the possibility of accumulation within one branch and between branches.
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