IC85 Mock Test Sample 16
Reinsurance helps insurers stabilize results, reduce fluctuations, and strengthen financial capacity, much like a shock absorber smoothens road impact. Treaty reinsurance automatically covers risks within agreed terms, while quota share treaties divide every risk in fixed proportions between insurer and reinsurer. Concepts such as losses occurring basis, risk-based capital, surplus treaties, and claims control clauses are important in reinsurance management. Reinsurers assess underwriting policies, claims history, and business approach before accepting risks. Principles like utmost good faith and full disclosure are essential in reinsurance contracts. Events like the 9/11 attacks significantly impacted terrorism coverage and reinsurance market practices globally.
Q1. According to Dr. F.L. Tuma, what is the function of reinsurance compared to a shock absorber?
a) Reinsurance reduces material losses
b) Reinsurance makes the road smoother
c) Reinsurance absorbs road jerks
d) Reinsurance reduces the volume of business
Q2. Which statement is true regarding treaty reinsurance?
a) The reinsurer may decline risks within the agreement
b) Treaty reinsurance requires review of individual risks
c) Treaty reinsurance involves high administrative costs
d) Treaty wordings are standardized globally
Q3. In certain classes of insurance business, what is the "ORC" in reinsurance?
a) Original Risk Calculation
b) Outstanding Reinsurance Commission
c) Overriding Rate Commission
d) Original Net Rate Commission
Q4. What is a quota share treaty in reinsurance?
a) Reinsurer retains all risks
b) Negotiation required for each risk
c) Treaty starts after insurer accepts risk
d) Reinsurer shares a fixed percentage of every risk
Q5. What is the primary reason for late reporting of claims in reinsurance?
a) Administrative problems of reinsurer
b) Administrative problems of reinsured
c) Increased court awards
d) Catastrophic events
Q6. Under the "losses occurring" basis, what is the reinsurer responsible for?
a) No liability for losses
b) Liability only for known claims
c) Liability for all losses during contract period
d) Liability only before inception date
Q7. What role does the Reinsurance Manager play regarding corporate liquidity?
a) Setting cash loss limits
b) Making investment decisions
c) Balancing investment portfolio
d) Deciding optimal retention levels
Q8. What determines the maximum liability for the second surplus treaty?
a) Underwriting data
b) Past record of losses
c) Limit of cover provided
d) Premium ceded under treaty
Q9. What is the primary objective of quota-share and surplus treaties in fire reinsurance?
a) Increase volatility
b) Provide recovery for fire losses
c) Reduce effectiveness of covers
d) Iron out yearly variations in results
Q10. In marine cargo insurance, what important feature arises due to accumulation of liability?
a) High premiums
b) Clustering of risks per vessel
c) Large policy amounts
d) Air transit coverage
Q11. What does "risk-based capital" refer to in reinsurance program design?
a) Size and structure of portfolio
b) Financial strength and free assets
c) Frequency and size of losses
d) Relationship between largest risk and cat exposures
Q12. What is an important consideration for a reinsurer when assessing a ceding insurer?
a) Reputation of ceding insurer
b) Geographical location
c) Hobbies of underwriters
d) Claims history
Q13. Why is the general business approach of the reinsurer important in higher covers placement?
a) Increase claims information
b) Maximize treaty impact
c) Streamline administration
d) Ensure cooperation in claims situations
Q14. What measures help secure complete protection at an economic cost in reinsurance?
a) Reducing number of reinsurers
b) Lowering financial soundness
c) Arranging working covers on per event basis
d) Eliminating competition
Q15. Which principle requires full disclosure of every material fact in reinsurance?
a) Insurable interest
b) Doctrine of good faith
c) Principle of indemnity
d) Principle of utmost good faith
Q16. What does the "Insolvency of other reinsurers" clause state?
a) Reinsurer’s loss increases if another reinsurer defaults
b) Reinsurer assumes all liability
c) Reinsurer immune from insolvency effects
d) Reinsurer’s loss will not increase due to another reinsurer’s insolvency
Q17. What was the impact of excluding terrorism risks after September 2001?
a) Reduced risk for insurers
b) No impact on industry
c) Increased hardship for insurers and insureds
d) Lower reinsurance costs
Q18. How is the concept of "one loss" addressed in liability excess of loss reinsurance?
a) All liability losses aggregated into one occurrence
b) Different policy periods treated separately
c) Same disease claims grouped into one occurrence
d) Fidelity losses always treated as one occurrence
Q19. What does the "Claims Control Clause" grant to reinsurers?
a) Authority to adjust premiums
b) Control over settlement of indemnifiable claims
c) Rights to own insurance policies
d) Ability to determine policy terms
Q20. The overriding commission in GIC should not exceed what percentage?
a) 5%
b) 10%
c) 2.50%
d) 15%
