IC85 Mock Test Sample 15
Reinsurance helps insurers manage risk, stabilize fluctuations, and improve financial strength through retention strategies and treaty arrangements. Per risk retention can be controlled using informed decisions and formulas, while proper retention limits are important to balance premium income and claim exposure. Treaty reinsurance automatically covers risks within agreed limits between insurer and reinsurer. Quota share treaties are profitable because reinsurers participate proportionately in every risk. Concepts like surplus treaties, loss ratios, ultimate net loss, and schedules of retentions are central to property and marine reinsurance. Reinsurance contracts are contracts of indemnity and support insurers in handling large and complex exposures effectively.
Q1. Choose true statement with regards to Per Risk Retention:
a) Only (i)
b) Only (ii)
c) Only (iii)
d) All of these
Q2. Find out the statement whether true/false:
I. If retention limit is too low, insurers cede too much premium income.
II. If retention limit is too high, they retain more when claims occur.
a) Both I and II are true
b) Both I and II are false
c) I is true and II is false
d) II is true and I is false
Q3. In a reinsurance company, who is responsible for acceptance of business and profits made?
a) agents
b) brokers
c) underwriters
d) regulators
Q4. Judge which statement is valid regarding earthquake magnitude measurement:
a) Only I
b) Both II and III
c) Only V
d) Only IV
Q5. Reinsurance contract can be best categorized under:
a) Quasi contracts
b) Contract of probability
c) Contract of indemnity
d) Contract of wager
Q6. What does Treaty Reinsurance consist of?
a) Agreement between insurer and financial advisor
b) Agreement between insurer and reinsurer
c) Agreement between insurer and broker
d) Agreement between insurer and shareholder
Q7. What is the correct approach for evaluation of outward arrangements?
a) Arrangement-wise assessment of insurance transactions
b) Arrangement-wise assessment of purchases
c) Arrangement-wise assessment of investment transactions
d) Arrangement-wise assessment of reinsurance cessions
Q8. When would a second surplus treaty receive a risk?
a) When original SI is lesser than retention plus third surplus treaty
b) When original SI is larger than reinsurer retention plus first surplus treaty
c) When original SI is lesser than ceding insurer retention plus first surplus treaty
d) When original SI is larger than ceding insurer retention plus first surplus treaty
Q9. Why is the quota share treaty more profitable to a reinsurer?
a) Participates in every meeting
b) Participates in every risk on same basis as ceding insurer
c) Participates in very few risks
d) Participates on same basis as shareholder
Q10. Analyze the following statement regarding portfolio and retention:
a) Both I and II are true
b) Both I and II are false
c) Only I is true
d) Only II is true
Q11. If management sets high retention limit then:
a) Too large premium ceded to reinsurer
b) Too small premium ceded to reinsurer
c) More retained when claims occur
d) Less retained when claims occur
Q12. In program design, new types of cover are acceptable only when:
a) Covers devised for new developments
b) Covers due to science and technology changes
c) Covers with exposures accommodated within program
d) All the above
Q13. PQR Ltd., an insurer, wants to know the real nature of reinsurance.
a) Reinsurance cannot exist without direct insurance
b) Based on speculation
c) Similar to co-insurance
d) Based on negotiation
Q14. Which is true regarding the gross direct account?
a) Expected to sustain its loss ratio over time
b) Subject to wide variation as exposures permit
c) In good years generates revenue for reinsurers
d) In bad years generates losses for reinsurers
Q15. In a treaty document, what does the term "line" refer to?
a) Text of treaty document
b) Signature lines
c) Amount ceded to a surplus treaty
d) Type of reinsurance used
Q16. Which is NOT included in claims costs for determining ultimate net loss?
a) Salvage costs
b) Assessor’s fees
c) Legal costs and interest
d) Salaries of employees
Q17. Which risk factors are considered when designing a schedule of retentions?
a) Premium amounts
b) Insured’s credit score
c) Process carried on
d) Policy issuance dates
Q18. What are the two distinct classes of loss exposures in marine-cargo reinsurance?
a) Total loss and common loss
b) Common loss and general average loss
c) General average loss and particular average loss
d) Partial loss and special loss
Q19. How is per risk retention typically scaled down?
a) Increasing quality of risks
b) According to government regulations
c) By using clearly defined formulas
d) Based on underwriter’s preferences
Q20. What does a notice of cancellation in a reinsurance contract typically address?
a) Retention limits
b) Maximum liability under treaty
c) Reasons for termination
d) Territorial scope
