Basics of Reinsurance

1.

Multiple Choice

2 mins

1 pt

Reinsurance allows an insurance company to:

a. Expand its capacity

b. Stabilise its underwriting results

c. Finance its expanding volume

d. All of the above

2.

Multiple Choice

2 mins

1 pt

The capacity of an insurer is:

a. The size of the insurer

b. How many employees an insurer has

c. The amount of business an insurer can accept

d. The underwriting results of an insurer

3.

Multiple Choice

2 mins

1 pt

Prudent insurers

a. Will avoid over-exposure on any risk

b. Will focus on profit only

c. Will always only take risks they have experience in

d. Only use facultative reinsurance to reinsure business

4.

Multiple Choice

2 mins

1 pt

A solvency margin is:

a. a tool to use when we are checking if commercial clients are solvent

b. worked out by dividing premium by claims

c. the amount by which assets must exceed liabilities

d. None of the above

5.

Multiple Choice

2 mins

1 pt

Reinsurance is:

a. Only necessary when an insurer is new or inexperienced in a class of business

b. A risk transfer mechanism and spreads the risk

c A mechanism to transfer high risk business to another insurer

d. Organised once a year in negotiations with reinsurers

6.

Multiple Choice

2 mins

1 pt

The reinsurer that sets the terms for the contract is called the:

a. following reinsurer

b. lead reinsurer

c. chief reinsurer

d. stakeholding reinsurer

e. major reinsurer

7.

Multiple Choice

2 mins

1 pt

Treaty Reinsurance is:

a. negotiated between insurers and reinsurers on an annual basis

b. placed individually on particular policies when retention limits are exceeded

c. subject to treaty exclusions

d. a & c

8.

Multiple Choice

2 mins

1 pt

1. Proportional forms of treaty reinsurance include:

a. quota share; surplus

b. excess of loss; quota share

c. surplus; excess of loss

d. surplus; cat XL

9.

Multiple Choice

2 mins

1 pt

The retention of the primary insurer in an excess of loss arrangement is called:

a. First amount payable

b. Insurers capacity

c. Deductible

d. First layer

10.

Multiple Choice

2 mins

1 pt

Facultative reinsurance is:

a. Negotiated annually with reinsurers

b. Only requested from reinsurers when dealing with property insurance

c. issued on an individual analysis of the situation and facts of the underlying policy

d. automatically accepted by the reinsurer if the insurance is on a reinsured class of business

11.

Multiple Choice

2 mins

1 pt

A base or deductible amount is set in the reinsurance policy, and any loss exceeding that amount is paid by the reinsurer in non-proportional reinsurance.

True

False

12.

Multiple Choice

2 mins

1 pt

A reinsurance contract is a contract of indemnity.

True

False

13.

Multiple Choice

2 mins

1 pt

Non-proportional reinsurance is usually expressed as a percentage of the risk a reinsurer is taking from the primary insurer.

True

False

14.

Multiple Choice

2 mins

1 pt

Surplus treaty works with a reinsurer taking multiple “lines” of the insurer’s retention.

True

False

15.

Multiple Choice

2 mins

1 pt

In Excess of Loss reinsurance, the reinsurer is responsible for the amounts in the deductible and the insurer for the excess of loss.

True

False

16.

Multiple Choice

2 mins

1 pt

EML stands for: estimated maximum loss.

True

False

17.

Multiple Choice

2 mins

1 pt

The duty of good faith has several facets, including the requirement that both parties to the reinsurance contract deal with each other with openess and honesty.

True

False

18.

Multiple Choice

2 mins

1 pt

Reinsurance companies are not by law allowed to purchase their own reinsurance from other reinsurers.

True

False

19.

Multiple Choice

2 mins

1 pt

A line is the amount of risk which an insurer keeps for its own account which is the maximum net loss that can be sustained on that risk by the cedant.

True

False

20.

Multiple Choice

2 mins

1 pt

A retrocession is a second reinsurance, that is where the reinsurer decides, having accepted a cession, to arrange a further reinsurance on its part of the risk

True

False

21.

Multiple Choice

2 mins

1 pt

How is surplus reinsurance similar to quota share reinsurance?

The reinsurer and reinsured's share of the claim is proportionate.

The reinsured retains a more homogeneous portfolio.

The reinsurer's share of the claim is a multiple of the reinsured's retention.

The share of the reinsured and reinsurer differs from cession to cession.

22.

Multiple Choice

2 mins

1 pt

An individual loss on an insured risk triggers the reinsurance coverage if it exceeds the deductible, is described as an excess of loss per risk treaty.

True

False

23.

Multiple Choice

2 mins

1 pt

A quota share treaty refers to perils that affect many policyholders e.g hurricanes, earthquakes

True

False

24.

Multiple Choice

2 mins

1 pt

Treaty reinsurance is the reinsurance of entire insurance portfolios.

True

False

25.

Multiple Choice

30 sec

1 pt

The retention of a company is the percentage amount that an insurer expects to keep of the premium from a risk

True

False

26.

Multiple Choice

2 mins

1 pt

What are the disadvantages of facultative reinsurance?

High administration costs

Maximises capacity

No immediate cover

Can cover hazardous classes such as petrochemicals

27.

Multiple Choice

2 mins

1 pt

A retrocession is when a reinsurer purchases protection from another reinsurer.

True

False

28.

Multiple Choice

2 mins

1 pt

On facultative excess of loss for $2 000 000 XS $1 000 000, how much does the insurance company retain?

$2 000 000

$1 000 000

$3 000 000

29.

Multiple Choice

2 mins

1 pt

ABC Insurance Co has a surplus treaty of nine lines of $1 000 000 and a retention of $1 000 000. They accept a risk with a sum insured of $15 000 000. How much facultative reinsurance should they buy?

$6 000 000

$5 000 000

$4 000 000

$14 000 000

30.

Multiple Choice

2 mins

1 pt

An insurance company which places business, with a reinsurance company is known as a........

Casualty

Cedant

Catastrophe

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