IC85 Mock Test Sample 11
Reinsurance helps insurance companies manage risk, stabilize profits, and increase their capacity to insure large or unusual risks. Different forms such as quota share, surplus treaties, excess of loss, and retrocession support insurers in reducing financial uncertainty. Retention levels generally increase as portfolios grow, while catastrophe protection and event retention help manage major losses. Marine and property insurance often require specialized covers due to varied risks. Financial strength, underwriting quality, and proper retention schedules are essential in reinsurance program design. Lloyd’s operates as a reinsurance market, and treaty agreements, commissions, and loss clauses form important elements of reinsurance operations worldwide.
Q1. In practice, what tends to happen to an insurer's retention as the portfolio grows?
a) The retention remains constant
b) The retention decreases proportionately
c) The retention increases proportionately
d) The retention fluctuates widely
Q2. What co-insurance measure might reinsurers consider enforcing on the catastrophe layer in reinsurance?
a) A 20% co-insurance
b) A 10% co-insurance
c) A 5% co-insurance
d) A 25% co-insurance
Q3. What type of business derives its premium from a limited number of risks?
a) Second surplus treaty
b) Auto/Fac cover
c) First surplus treaty
d) Peak risks
Q4. What is one reason for the termination of a reinsurance contract?
a) To simplify the agreement
b) To limit the geographic scope
c) Due to war
d) Due to excessive retention
Q5. What is the distinctive development that has followed liberalization in India with regard to inward reinsurance?
a) The Ministry of Finance now handles all inward reinsurance
b) Insurers are no longer allowed to write inward reinsurance
c) Each insurer can define inward reinsurance philosophy with IRDA approval
d) Only GIC Re is permitted to offer inward reinsurance
Q6. In what way does reinsurance enable an insurer to consider unusual proposals?
a) By refusing non-standard risks
b) By limiting insurer risk exposure
c) By communication between insurers
d) By helping insurers carry material consequences of unusual proposals
Q7. What is retrocession in reinsurance?
a) Insurance by the primary insurer
b) Underwriting individual risks
c) Reinsuring the primary insurer
d) Reinsuring a reinsurance company
Q8. In variable quota share reinsurance, how does the percentage of retention vary?
a) It increases with increase in sum insured
b) It decreases with increase in sum insured
c) It remains the same
d) It depends on reinsurer’s decision
Q9. What is a profit commission in reinsurance?
a) Commission paid by ceding insurer
b) Expense of treaty management
c) Commission returned when treaty is profitable
d) Fee for assessing profitability
Q10. What is the importance of defining “ultimate net loss” in non-proportional reinsurance?
a) To determine gross loss before recovery
b) To ensure reinsurer participates only above retained loss
c) To calculate initial retention
d) To calculate ceding commission
Q11. What is the main merit of the “losses occurring” basis?
a) Excludes present contract claims
b) Provides simple and self-contained contract year approach
c) Requires policy issue verification
d) Requires portfolio takeovers
Q12. What is typically done for large risks when standard schedules do not apply?
a) Fixed retentions always used
b) Retentions based on policy dates
c) Retentions determined individually through inspections
d) Retention percentages increased
Q13. In which situations is quota share arrangement satisfactory in marine cargo reinsurance?
a) Wide variation in vessel values
b) Clustering of exposures
c) Common cause of loss
d) Premium rates generally satisfactory
Q14. Which property insurance class is well suited for proportional treaty protection?
a) Engineering insurance
b) Standard fire & special perils insurance
c) Theft & Burglary Insurance
d) Industrial All Risks insurance
Q15. Why do marine insurers use specialist covers?
a) To increase premiums
b) To simplify claims
c) To reduce claims frequency
d) Due to varied perils faced by ships and cargoes
Q16. Which factor does per event retention management involve?
a) Government compliance
b) Catastrophe reserve accumulation
c) Personal preferences
d) Clearly defined formulas
Q17. Why is insurer financial strength relevant in reinsurance design?
a) Determines geographic location
b) Affects portfolio structure
c) Influences retentions and cover limits
d) Affects loss frequency only
Q18. In which market conditions does a reinsurer seek to support a ceding insurer?
a) When undercapitalized
b) When financially stable
c) When considered rogue
d) During unusual transactions
Q19. Why examine underwriting data and rate levels for top surpluses?
a) To maximize reinsurer profits
b) To ensure full insurance
c) To verify reinsurer soundness
d) To secure protection economically
Q20. What practice in the London reinsurance market created important legal precedents?
a) Early settlement
b) Reinsurance policy issuance
c) Use of broker’s “Cover Note”
d) Oral agreements
