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!

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Retentions MCQs | Page 6 of 24

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Q51.
How is the level of retention scaled down in insurance?

a.

In a random manner

b.

According to the quality of the risk in question

c.

According to the age of the policyholder

d.

Without any specific criteria

Discuss
Answer: (b).According to the quality of the risk in question Explanation:The level of retention is scaled down in a manner relevant to the quality of the risk in question with retention on a first class risk being much higher than that on a perceptibly poor risk.
Q52.
What factors influence the insurer's decision about retention limits?

a.

Market penetration and share

b.

Prevailing characteristics of the reinsurance market

c.

Credit rating of the reinsurer

d.

All of the above

Discuss
Answer: (d).All of the above Explanation:The insurer's decision about retention limits is influenced by factors such as market penetration and share, prevailing characteristics of the reinsurance market, and credit rating of the reinsurer.
Q53.
What happens when the reinsurance market is "soft"?

a.

The insurer may have a virtual "carte blanche" to set its own terms

b.

The insurer's retention limits will be strictly controlled by the reinsurers

c.

The insurer will be forced to reduce its retention limits

d.

None of the above

Discuss
Answer: (a).The insurer may have a virtual "carte blanche" to set its own terms Explanation:When the reinsurance market is "soft," the insurer may have a virtual "carte blanche" to set its own terms with due care as to the credit rating of the reinsurer.
Q54.
What is the most important decision that any insurer is called upon to make?

a.

Setting premium levels

b.

Underwriting policies

c.

Determining retention limits

d.

Hiring staff

Discuss
Answer: (c).Determining retention limits Explanation:Determining retention limits is arguably the most important decision that any insurer is called upon to make.
Q55.
What is a guide for an insurer in correcting the limits as they continue to write business over the years?

a.

Regulatory direction for solvency

b.

Prevailing characteristics of the reinsurance market

c.

Credit rating of the reinsurer

d.

None of the above

Discuss
Answer: (a).Regulatory direction for solvency Explanation:Regulatory direction for solvency is a guide to an insurer in correcting the limits as they continue to write business over the years.
Q56.
Retention is a combination of the financial consequences of__________

a.

Risk and event based losses

b.

Return and event based losses

c.

Return and even based profits

d.

Risk and event based profits

Discuss
Answer: (a).Risk and event based losses Explanation:Retention is the amount of risk an insurer is willing to take on and keep for its own account after ceding a portion of the risk to a reinsurer. Retention is typically expressed as a dollar amount or as a percentage of the total insured value. The purpose of retention is to align the insurer's interests with those of the insured and to ensure that the insurer has sufficient funds to pay claims in the event of a loss. Therefore, retention is a combination of the financial consequences of risk and event based losses, which the insurer must be prepared to absorb. The other options, return and event based losses, return and even based profits, and risk and event based profits, are not relevant to the definition of retention.
Q57.
What is the first step in fixing retentions for property insurance?

a.

Determine the level of optimum retention

b.

Evaluate the loss exposures

c.

Grade the retention amounts

d.

Inspect the risks individually

Discuss
Answer: (a).Determine the level of optimum retention Explanation:The first step in fixing retentions for property insurance is to determine the level of optimum retention. This is done by taking note of the loss exposures and using a usual schedule of retentions based on the risk factors of location, separation, process carried on, and class of construction and fire protection.
Q58.
What risk factors are used to determine the usual schedule of retentions for property insurance?

a.

Location, separation, and process carried on

b.

Class of construction and fire protection

c.

Expected variation in the frequency of loss occurrences

d.

Both a and b

Discuss
Answer: (d).Both a and b Explanation:The usual schedule of retentions for property insurance is based on risk factors such as location, separation, process carried on, class of construction and fire protection. These retention amounts are graded to bring about similar loss exposure per risk.
Q59.
When dealing with large risks, what is customary in terms of fixing retentions?

a.

Use a standard schedule of retentions

b.

Evaluate the loss exposures

c.

Grade the retention amounts

d.

Inspect the risks individually

Discuss
Answer: (d).Inspect the risks individually Explanation:When dealing with large risks, it is customary to have the risks inspected and to fix retentions individually, rather than applying a standard schedule of retentions.
Q60.
What three factors does stability in the claims ratio depend on?

a.

The number of individual risks, standard deviation, and probable maximum loss by one event to the premium of the portfolio

b.

The number of individual risks, the standard deviation, and loss exposures

c.

The expected variation in the frequency of loss occurrences, probable maximum loss by one event to the premium of the portfolio, and the credit rating of the insurer

d.

The expected variation in the frequency of loss occurrences, the number of individual risks, and the credit rating of the insurer

Discuss
Answer: (a).The number of individual risks, standard deviation, and probable maximum loss by one event to the premium of the portfolio Explanation:Stability in the claims ratio will depend on the number of individual risks constituting the portfolio, the standard deviation or expected variation in the frequency of loss occurrences, and the ratio of probable maximum loss by one event to the premium of the portfolio.
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