85 Reinsurance

Question Ans:
"Project monitoring for delays" is a consideration

for a facultative reinsurance placement for a large
construction project. Decide the validity of this
statement. Yes, this statement is perfectly valid
__ was the child of the Industrial Age as capital
investment became exposed to risk to an extent
to which subsistence farming never was. Insurance
_______ is an additional percentage payable to a
ceding insurer on profitable treaties in
accordance with an agreed formula. Profit commission
__________ is a contract of reinsurance whereby
the ceding insurer may cede risks of any agreed
class of insurance which the reinsurer must
accept if ceded. Facultative Obligatory treaty
__________ are a global phenomenon dating
back to 1950s. Captives
__________ are recognized as worldwide as the
benchmark for assessing insurers' financial
strength. Ratings
__________ are reinsurance agreements entered
into in writing between the ceding insurer and his
reinsurer and embody the terms and conditions
of the treaty as agreed between these two
parties. Treaty wordings
__________ can be a retained level of deductible. Self insurance
__________ is compared to the shock absorbers
on a car which do not make the road smoother
but makes a bumpy ride into a smoother one. Reinsurance
__________ is used by insurers and reinsurers to
inform the markets of their financial strengths. Credit rating
A __________ is not a guarantee of an insurer's
financial strength or security. Rating
A ceding insurer may arrange first, second, third
and further surplus treaties as per need. How
would you judge this statement. This is true
The monetory limits and mode of operation, the
classes of families covered, the territorial scope, the
A formal treaty wording is usually drawn up by risks excluded and the calculation of payment of
the parties to describe which of the following? premiums & claims and the period of agreement
A good spread for the net account is obtained
only by concluding exchanges with reinsurers
offering business derived from various regions of
the world. Do you think this is a valid statement? Yes, this is a valid statement
A Ltd. a ceding insurer wants to know about profit Professional reinsurers cannot provide 100%
reciprocity. Explain any one feature. premium or profit reciprocity
A Ltd. an insurer thinks that GIC Re has been No, GIC Re ranks within top 20
ranked within the top 3 reinsurers. Do you agree?
A Ltd. has signed an reinsurance contract with B
Ltd. One of the possible advantages of this
decision could be:- Improved working capital position of the companies
A Ltd. wants you to design a sentence which
would best describe a feature of tax regulations
in various countries. They differ from country to country
A Ltd. wants you to design a sentence which In the aviation business, the capacities required and
would describe a feature of aviation business in the volatile nature of loss experience may preclude
the context of reinsurance. the placement of such business with one reinsurer
A Ltd., an insurer, wants to analyse the possible GIC Re deals with reinsurance of Life & General
areas of work of GIC Re. Identify the correct area. insurance
A Ltd., an insurer, wants to identify the objective
behind the establishment of Asian Reinsurance Objective is to reduce the drain on foreign
Corporation. exchange resources
A marine underwriter can be easily misled or Yes, he can be misled since he will not be able to
even defrauded. Do you agree? see too many ships and cargoes that he insures
Individual treaties, the main classes of reinsurance
business, the business obtained from different
A reinsurer in the main has to monitor which of countries and regions, claims trends and provisions
the following? and exposures
A reinsurer was proposed a reinsurance contract
where it could cede risks of any agreed class of
insurance which the reinsurer must accept if
ceded. The proposed type was:- Facultative obligatory treaty
A reinsurer would always want to know who the
underwriter is. Do you think this is valid? Yes, this is a valid statement
A single composite cover could be installed
protecting at one go the whole business of the
reinsured incorporating all classes of business. Such an arrangement is known as Whole Account
What is such an arrangement called? Excess of Loss cover.
ABC Limited claims that "Aggregate Excess"
concept is under facultative reinsurance. No, it is wrong since the concept is under treaty
Comment. reinsurance
ABC Limited wants a reinsurance because of its
net retention being lowered on account of degree
of hazard. Propose a method. Facultative obligatory treaty contract is better
ABC Limited wants to contrast between
facultative and treaty reinsurance with regards to
obtaining reinsurer's advice on doubtful risks. Facultative reinsurance can help in obtaining such
Help it:- advice
ABC Ltd an insurer wants explanation for
'possibility of accumulation within one branch'.
Help it. It is an example of event based exposure
ABC Ltd an insurer wants to identify the factor
which does not appear in the schedule of
retentions. Help it. Profits
ABC Ltd claims that a reinsurance programme can
create a great strain on its liquidity. Judge the It is not a valid claim since the programme is aimed
validity of the claim. to provide a stable experience to the net account
ABC Ltd wants to identify the precise formula for Paid losses + Outstanding loss / Treaty period GNPI
'Pure burning cost'. Explain it. x 100/70
ABC Ltd. a ceding insurer claims that the
arbitration clause allows the possibility of making
amendments, consent of both the parties,
addendum forming integral part of and binding No, I do not agree since alteration clause will allow
on the parties. Do you agree with it? this
ABC Ltd. a ceding insurer claims that with the
help of downgrade clause, it can make a provision
for termination without notice in the event of
certain other circumstances stipulated in the No this is not valid Since sudden death clause will
contract. Is this valid? help for this
ABC Ltd. a ceding insurer wants to know about Asset management is one of the three ways by
Asset Management in the context of alternative which the techniques of risk management are
risk transfers. Explain. pursued
ABC Ltd. a ceding insurer wants to know about In long tail business, the claims are not known for
long tail business. Explain. many years
ABC Ltd. a ceding insurer wants to know the Selections should be based on professional
traditional mode of selecting a reinsurer. Explain. reputation and technical support services
ABC Ltd. a reinsurer asks you to name the clause
which mentions the territorial scope, to be
explained to their employees. Help it. Operative clause
ABC Ltd. a reinsurer asks you to suggest a term
for reinsurance transactions to be explained to
their employees. Please pick the term from the
below options. Contracts embodied in printed documentation
ABC Ltd. a reinsurer claims that follow up of a
reinsurance programme should not involve
anything towards liquidity management. Do you
agree? No, I do not agree
ABC Ltd. a reinsurer claims that follow up of a
reinsurance programme should not involve any
modifications to the programme design. Do you
agree? No, I do not agree
ABC Ltd. a reinsurer claims that presently the
benchmark for credit agencies is a country's
'sovereign rating'. Judge the validity of this
statement. This is a valid statement
ABC Ltd. a reinsurer claims that retrocession from
ceding to GIC Re and the Pools are mandatory
inward reinsurance to insurers in India. Is this a
valid claim? Yes, this is a valid claim
ABC Ltd. a reinsurer claims that the marketing
staff does not need the information generated Not agreed at all
from insurance statistical system. Do you agree?
ABC Ltd. a reinsurer is seeking your help to
categorise 'Catastrophe' treaty. Time zone of reinsured
ABC Ltd. a reinsurer wants to know the meaning
of ruin in the context reinsurance program.
Explain. It means bankruptcy
ABC Ltd. a reinsurer wants to know the nature of
responsibility of an intermediary. Explain. Intermediary has dual responsibility
ABC Ltd. a reinsurer wants you to devise a phrase
for the 'cost at which claims would equal the
excess of loss reinsurance premium'. Help. Burning cost
ABC Ltd. an insurer claims that bush fire is a high
risk factor in India as compared to Australia. Do
you agree? No not agreed It's a risk factor in Australia
ABC Ltd. an insurer claims that 'currency' and
'inflation' cannot affect the underlying statistical
trend. Do you agree? Not agreed at all
ABC Ltd. an insurer claims that there is no
disproportion between sum insured for different This is not right, infact there exists tremendous
classes of engineering lines under the engineering disproportion which is the main problem under this
reinsurance. Kindly advise. class
ABC Ltd. an insurer, claims that acceptances
made on direct basis does not require experience
staff. Is this a valid claim? No, this is not a valid claim
ABC Ltd. an insurer, claims that capital market has
been playing a growing role in the retrocessional
arena. Is this a correct claim? Yes, this is a correct claim
ABC Ltd. an insurer, claims that 'Credit watch'
highlights the potential direction of a rating. Is
this true? Yes, this is true
ABC Ltd. an insurer, claims that exercises to carry
out 'as if' results would not help them for
designing reinsurance programme. Judge the
validity. It is not a valid claim
ABC Ltd. an insurer, wants you to design a
sentence which would describe a feature of 'ART
Products'. It has the capacity to provide exceptional profits
sentence which would describe a feature of 'Asset It is a professional management of investments
Management'. such as stocks, bonds and real estate
sentence which would describe a feature of
Property and liability insurance premiums. They are cyclical in nature
sentence which would describe a feature of
alternative risk transfer product. The coverage applicable to multiple lines
ABC Ltd. an insurer, wants you to design a The profit commission statement agrees with the
sentence/phrase which would describe a feature accounted figures
of a review.
sentence/phrase which would describe a feature
of assessment of commitments. The assessment should be done zone wise
of credit rating. Determining quality
of an insurer who would be permitted by IRDA
regulations to write inward reinsurance business. Well defined underwriting policy
of Reciprocal trading. Addition to net premiums and net profits
sentence/phrase which would describe a feature It assists for an assessment of historical exchange of
of statistical summary. results
of an insurer or reinsurer who wants to transact Developed corporate strategy supported by proper
inward reinsurance business. infrastructure
ABC Ltd. claims that accounts can be divided into
two parts:- (a) Technical
account (b) Premium account. Judge the No, this is not valid The two parts are:- (a) Technical
validity. (b) Financial
ABC Ltd. claims that more than the wordings, the
intention of the clause is important. Do you
agree? Understanding the intention is important
ABC Ltd. claims that one of the important reasons
for splitting a surplus treaty into two or three
surpluses, is to obtain the best possible
commission terms for the business. Do you think
this is a valid claim. Yes, this is a valid claim
ABC Ltd. claims that operative clause allows to
define the exact business which comes within the
scope of the reinsurance contract. Yes I agree
ABC Ltd. claims that there are only 10 captive
insurers in the world and all of them are located There are over 4000 and are spread over various
in the U.S.A. Argue the validity. parts of the world
ABC Ltd. wants an explanation with respect to The transfer of risk from policyholder to the
any one feature of finite risk solutions. Help it. insurer/reinsurer is finite
ABC Ltd. wants an explanation with respect to As per IRDA regulations, all life and non-life insurers
IRDA's stand on inward reinsurance business. in India can write inward reinsurance business from
Help it. other domestic insurers and from overseas
ABC Ltd. wants an explanation with respect to the The rating agencies assess the capacity of insurers
criteria adopted by credit agencies for security and reinsurers to settle claims
evaluation. Help it.
ABC Ltd. wants to align its percentage of
retention with the occupancy of risk. Suggest. Variable quota share may help
ABC Ltd. wants to insulate the shareholder's
funds from unpredictable losses. Devise a
solution. Reinsurance contract
ABC Ltd. wants to know about a question whose Whether the insurer has procedures or processes in
answer can impact the delegated authority in the place for reviewing and accepting or denying
context of insurance. Mention the question. claims?
ABC Ltd. wants to know as to what would happen
if the insurers are individually small. Retention levels are very low
ABC Ltd. wants you to design a sentence which
would describe a feature of Lloyd's underwriters.
Help it. At specified time
would describe a feature of NAIC (U.S.A). Its an insurance regulatory body
would describe a feature of IRDA. It's a regulatory body
would describe a feature of ICRA. It is a well-known credit rating agency in India
ABC Ltd. wants you to design a sentence which Reinsurance assets cannot be offset against related
would describe a feature of reinsurance assets. reinsurance liabilities
ABC Ltd. wants you to explain to it the meaning of This chart helps in keeping a watch on receipt of
accounts flow chart. accounts and follow up of delayed accounts
ABCD Ltd. a reinsurer claims that the level of
ceding commission can be determined by
negotiations between the ceding insurer and the
reinsurers. Do you agree? Absolutely agreed
According to fixed quota share if reinsurance
protects 90% of each risk written by the ceding
insurer, then what percentage is retained by the
insurer? 10%
According to which of the following Acts is every
insurer required to prepare at the expiration of
each calendar year, a balance sheet, a profit and
loss account and revenue account for each class
of insurance business? Insurance Act 1938
All companies cannot boast of a consistent record
of profits on their cargo treaties. In such cases It is followed by placing all the cargo surplus
what is the bouquet approach sometimes treaties together or by tagging it on to the fire
followed by? surplus treaties
Although proportional and non-proportional
forms of reinsurance differ in concept, the treaty
wordings for these two forms are same. Would
you agree with this statement? No, I do not agree with this statement
An organisation can internally connect all its No, not valid since such arrangement is called as
executives and offices through a private internet intranet
arrangement known as extranet. Is this a valid
statement.
Analyse the following options and select the one
which is closest to the advantage of reinsurance? Loss is widely distributed
Appropriately categorise 'Australia' in the context
of catastrophic risks. It is a zone prone to bush fires and storms
Appropriately categorise 'Chile' as a country with
respect to reinsurance business. A country where reinsurance monopoly was formed
Appropriately categorise 'Market Terrorism Pool'
appropriately. It is a good example of alternative carrier in India
Appropriately categorise 'non-reciprocal business'
in the context of reinsurance appropriately. A basis for underwriting business
The terms of placement, premium and the
As per the market practice which of the following participating underwriters with their shares set
are summarized in a cover note? opposite their names
As soon as acceptance is made, regarding which As soon as a acceptance is made a concurrent
of the following should a concurrent decision be decision will have to be taken regarding its
made? retention and underwriting
At Llyod's Syndicates the position of the
underwriter is clearly recognized with the Syndicate
At Llyod's Syndicates, who recognises the position owner or his agent managing the administration
of Underwriter? and routines of the Syndicate
The loss reserve is usually fixed at a rate of 100 or
At what rate is the loss reserve usually fixed? 90% of the outstanding losses
B Ltd. an insurer wants to know whether it can
define its own inward reinsurance philosophy. Yes, it can define its own philosophy subject to
Identify the correct option for it. IRDA approval
Based on needs of business an insurer determines
and negotiates with reinsurer/s terms, conditions
and rates for reinsurance protection. What does
it crystallise into? It crystallises as a reinsurance contract
By whom is the brokerage payable? The brokerage is payable by the reinsurer
Categorise accounting on 'Accounting year' basis. Fire and accident proportional reinsurance
Categorise 'Amount of deductible' appropriately. Business covered (non-proportional)
Categorise appropriately the 'set off clause'. Is often challenged by the creditors
Categorise 'Areas of interest of a credit rating
agency' appropriately. Industry analysis
Categorise as to where the 'method of cession' is
stated. Operative clause
Categorise 'Business covered' clause
appropriately. This is a special clause
Categorise 'Captives' appropriately in the context
of alternative risk transfer. It's a global phenomena dating back to 1950s
Categorise 'casualty business' appropriately. Its an example of long tail business
Categorise 'Credit rating' appropriately in the
context of purpose. It is an opinion of ability to pay
Categorise 'Credit rating' appropriately in the Base is information furnished by Rated insurers
context of the base of information used.
Accepting reinsurance and retrocession business
Categorise F.A.I.R appropriately. from African and Asian markets
Categorise 'facultative reinsurance business'
appropriately in the context of underwriting
philosophy. It involves more administrative work
Categorise 'Incurred but not reported' losses
appropriately. Feature of non-proportional reinsurance
Categorise India as a country when it comes to
laying down rules and regulation intended to
guarantee that an insurer will always be able to
meet his liabilities. India has such rules and regulation
Categorise 'Indonesia' appropriately in the
context of catastrophic risks. It is a zone prone to volcanic eruptions
Categorise 'legislation of a country' in the context It is a factor which affects underlying statistical
of insurance statistics. trends
Categorise 'Lloyds' appropriately. Market
Categorise 'Lloyds China' appropriately. 2007
Categorise 'non-proportional treaty' with
reference to profit commission. Such treaties rarely have a profit commission clause
Categorise 'Pools' in the context of alternative
risk transfer. It is a group of insurance companies
Categorise 'Professional rating committee' Someone who can take the decision regarding
appropriately. change of rating of an insurer
Its an additional percentage payable to a ceding
Categorise 'Profit Commission' appropriately. insurer on profitable treaties
Categorise 'profit commission on underwriting No reference to accounting year and all
year' basis appropriately. transactions accounted in same year
Categorise 'Reciprocal business' in the context of
reinsurance, appropriately. A type of underwriting philosophy
Categorise 'Reciprocal Exchange' appropriately in In this, all business exchanged with the insurer or
the context of analysing and presenting data. reinsurer is summarised in a sheet
Categorise 'Risk retention groups' appropriately. It originated in the U.S
Categorise 'Self Insurance' appropriately in the
context of alternative risk transfer. It is a type of risk carrier under alternative transfers
Categorise 'Southern Europe' appropriately in the
context of zones. It is a zone prone to earthquakes
Categorise 'Sovereign rating' appropriately. It is a country's overall rating
This method does not apply on the basis of per risk
Categorise 'Stop Loss' appropriately. or catastrophe
Categorise the benefit of 'stop loss ratio'
appropriately. Agriculture exposed to pest damage
Categorise the priority of a business underwriter
while setting retention levels. Contain fluctuation in insurer's results
Categorise the priority of a finance manager while
setting retention levels. Protecting liquidity
Categorise the priority of a shareholder while Preservation of capital
setting retention levels.
Categorise the term 'gross direct account'
properly. It generates surplus for reinsurers in good days
Categorise the term 'Risk Excess'. It operates on non-proportional basis
Categorise the term 'ruin'. It is a term used by actuaries
Categorise the term 'Surplus treaty'
appropriately. It forms the core of most reinsurance programmes
Categorise 'Working (risk) excess of loss'
appropriately. Limiting losses arising out of day to day operation
Commission rate is directly related to the
__________. Answer with regards to reinsurance. Loss ratio
Complete the phrase which has been designed as
follows - 'Lower the retention of the
reinsurer..........'. Higher will be the rate
Complete the phrase which has been designed as
follows - 'Unknown accumulations arising out of Can get protected with the help of Catastrophe
one event.....'. covers
Compose a term in respect of individual claims
which may take longer time to get reported? IBNR
Construct a term for deposit premium which is
prescribed as minimum premium for the cover. Minimum & Deposit premium
Create a phrase for "Probable Maximum Loss". Insurer's own exercise for decision making
Create a term for a situation where the rating of
insurance company can be raised. Positive designation
Create an arrangement where each policy needs
to be negotiated separately. Arrangement on facultative basis
Credit rating agencies, in all cases, follow an
established rating process. Is this a valid
statement? Yes, this is a valid statement
Credit rating goes beyond individual companies
and assesses a country`s overall strength for
reliability, return and repayment of principal and
interest from an investor`s viewpoint. What is it
known as? Sovereign rating
Credit rating is used by insurers and reinsurers to
inform the markets of their financial strengths. Is
this true? Yes, this is true
Credit ratings do not refer to an insurer's or
Credit ratings do not refer to which of the reinsurer's ability to meet non-policy (ie debt)
following? obligations
Cyclones can hit a coastline otherwise free from
the strong winds associated with temperature
and latitude. How is the database created in this The database in this respect is created at the time
respect? of issue of a policy or acceptance of reinsurance
An insurer would go for reinsurance to remove
Decide which argument is false? complexities from its business operations
Decide which argument is true? Law of large numbers is the economic base of
reinsurance contracts
Premiums and losses are shared in the proportion
that the ceding insurer's retention and the
Decide which option is true with respect to reinsurer's share bear to the sum insured of the
proportional reinsurance? original insurance
Proportional reinsurance can assist improve
Decide which option is true? combined ratio
Depending on what can the reinsured split & Depending on market conditions, availability of
structure his total XL? capacity and cost effectiveness
Design a logical and most appropriate conclusion
for the following sentence: An important data
that should be capable of being made available
from a good information system used by the
primary insurer should be:- Codes generated for catastrophe losses
for the following sentence: Review of Periodically and in any case at least one major
acceptances is to be done:- review must be done in a year
for the following sentence: If a transaction is
formally to be recognised as a type of reinsurance
for both supervisory and tax purpose, then:- A special purpose vehicle can help
for the following sentence: Risk transfer is:- A technique of risk management
for the following sentence: Dependency on
retrocessional protection is:- Close to 90% of global reinsurers
for the following sentence: A blend of all different
product structures utilizing both reinsurance and
capital market capacity:- Is called as optimal risk management solution
for the following sentence: One of the reasons
why direct writing insurance companies want to
write inward reinsurance business is
_____________________. To achieve a lower expense ratio
for the following sentence: Premium volume
_______________________. Can be built up faster in treaty business
for the following sentence: List of overdue An example of reinsurance statistic required by
accounts is:- management for effective control
for the following sentence: In case of an
amusement park whose revenues get affected
due to rising temperatures:- A Weather derivative can help
for the following sentence: One of the options All (I), (II) and (III) above
available to an insurer accepting reinsurance
business is:-
Design a logical conclusion for the following Do not refer to an insurer's or reinsurer's ability to
sentence: Credit ratings:- meet debt obligations
Design a logical conclusion for the following Expose an insurer or a reinsurer to credit risks and
sentence: Dealing with reinsurance would:- potential strains on liquidity
Design a logical conclusion for the following
sentence: It is an established convention that the
individual insurer rating is:- Subordinate to its country's rating
sentence: Legal issues and tax matters are:- Significant to reinsurance accounting
sentence: MIFA promotes FDI into developing
countries to:- Help support economic growth
sentence: People who are interested in the Owners or shareholders, management and
financial information are:- employees, tax authorities, etc.
sentence: Reinsurers are often looked upon as:- Financiers
sentence: The Lloyd's syndicates are supervised:- Principally by the Committee of Lloyd's
sentence: The nature of credit rating is:- Short-term and dynamic
sentence: The underwriting agencies are often
run by brokers but:- Not always so
Design a logical conclusion for the following Claims would be debited and Premiums would be
sentence: Under 'Accounting year' basis:- credited
sentence: Uninsurable natural perils such as Can be made insurable only because of spread of
earthquakes, floods and windstorms:- risk through reinsurance
Devise a phrase for a reinsurance company to
make it understand the phrase 'loss distribution
producing a fairly consistent pattern'. Pareto Law
Devise a phrase to explain how the rates for the Historical experience of losses as if the reinsurer
first year of treaty are calculated? paid them in past
Devise the best solution for achieving a precise
'anticipated loss exposure'. A well drawn schedule of retentions
Devise the names for methods for determining
which claim falls within the scope of excess of loss
cover. Losses occuring basis and Risk attaching basis
Devise the term in which the retentions and
reinsurance cessions can be expressed? Probable maximum loss
Discuss whether the statement 'Stop loss
responds if an accumulation of losses exceeds the
deductible selected' is valid or not. It is a valid statement
Do you agree that "Per occurrence" concept Agreed
comes under excess of loss treaty reinsurance?
Do you agree that in practice, a 'two risk
warranty' is included within the contract? Yes, I agree
Due to continued consolidation in the primary
insurance marketplace the world reinsurance
market continues to shrink. Is this a valid
statement? Yes, this is a valid statement
EDP, somehow, has not managed to move
towards web based access and use. Is this a
correct statement? No, this is not a correct statement
Examine the options and identify the one which is Treaty reinsurance does not require review of
closest to the characteristic of treaty insurance? individual risks
The reinsurer agrees a commission by way of
percentage of reinsurance premium given to him
Explain 'Ceding commission'? This is 'Ceding commission'
Explain in brief the relevance of the place Labuan That place is emerging as a key regional center for
in Malaysia to PQR Ltd. a ceding insurer. Asia Pacific
There are no fixed formulas for calculating
Explain one feature of 'retentions'. retentions
Explain PQR Ltd. a reinsurer, the advantage of
reinsurance in countries where minimum
solvency margins based on net premiums are Increasing volume of business without increasing
applied. capital
Explain PQR Ltd. an insurer the ultimate objective
of a good reinsurance programme design. Optimising retentions and building up capacity
Earned premium - Incurred claims - Ceding
Explain 'Profit to the treaty'? commission
Normally the unit of currency expressed in a treaty
Explain the currency clause to ABC Ltd. a agreement is the domestic currency of the ceding
reinsurer. insurer concerned
The main function is to reimburse the ceding
Explain the main function of reinsurance insurer with pro-rata amount of what it has paid to
commission. acquire the business
Large companies establish an insurance subsidiary
Explain the meaning of 'captive companies' to companies to look after some of the parent
ABC Ltd. a reinsurer. organisation's insurance needs
Explain the relevance of 'investment and liquidity
policy' in the context of reinsurance programme
design. Ascertaining cash flow
In this concept, each insurer keeps his own net
retention and thereafter cedes to the pool on
Explain the relevance of 'market pool'. priority basis up to defined limits
Explain the relevance of paid up capital in the
context of reinsurance programme design. It reflects financial strength of the insurer
It is used mainly for small accounts but where
Explain the relevance of 'quota share treaty'. administrative burden of surplus is large
Explain the relevance of 'size and structure of the Analysing the suitability of the type of reinsurance
portfolio' in the context of reinsurance arrangements
programme design.
Intermediary lends himself to the sensitive handling
Explain to ABC Ltd. a ceding insurer as to the of reciprocal reinsurance negotiations and
nature of work of an intermediary in brief. placement for reinsurance protections
Explain to ABC Ltd. an insurer whether It can help finance growth in case of a newly
reinsurance can be used to finance growth. formed insurance company
Facultative Obligatory reinsurance is used to To facilitate writing of high value exposures or to
facilitate which of the following? deal with high accumulation
Facultative reinsurance help to fill voids in the
coverage. Do you justify this statement? Yes
For a country like India, marine cargo business
premiums are mostly received from inland transit
by rail or road rather than air transit. Is this a
valid statement? Yes, this is true
For marine proportional reinsurance, the
accounting is rendered on an 'underwriting year'
basis. Do you agree with this ? Yes, this is true I agree
For marine proportional reinsurance, the
accounting is rendered on an 'underwriting year'
basis. Do you agree with this ? Yes, this is true I agree
For the purpose of surplus treaty the retention of
the ceding insurer is termed as a:- Line
For treaties on a three year average basis the
results of the current and two previous years are
taken. If this is profitable how is the profit If this is profitable, profit commission is payable at
commission payable? the rate applicable on 1/3 of this profit
The reinsurer merits consideration for either the
For which of the following does the reinsurer insurer's own inward reciprocal business or for
merit consideration? reinsurance as a cover requirement
For which of the following does treaty
reinsurance demand a careful review? The underwriting philospophy
For which of the following reasons have a number
of captive companies broadened their sphere of
activities to the writing of open market insurance
or reinsurance business? Tax reasons
Formulate a closest example for a risk emanating
from the reinsured. Moral hazard
Formulate the purpose of reinsurance in the view
of Dr. F.L Tuma, noted expert on reinsurance. The purpose is purely technical
From an insurers viewpoint this reduces the
From an insurer's point of view what does probability of a loss payment allowing for a lower
"Double Trigger" reduce? rate of premium
A ceding insurer with a treaty with average 10%
From whom can a ceding insurer with a treaty profitability can expect to receive 200% premium
with average 10% profitability expect to receive reciprocity from a reinsurer whose treaty has an
200% premium reciprocity? average profitability of 5%
Geographical location of operations is an
important factor in reinsurance programme
design. Do you agree? Yes, I agree
GIC Re targets a book of __________ in domestic
to overseas inward reinsurance business. 50:50
Help ABC Ltd. a reinsurer to identify the striking It is not secured to be relied upon as a primary
feature of facultative obligatory treaty. reinsurance
Help PQR Ltd. a reinsurer, distinguish between Retrocession is when one reinsurance company
reinsurance and retrocession. reinsures another reinsurance company
Product liability losses are dealt with on a 'batch'
system, that is, all claims arising from the
manufacture or distribution of one faulty batch or
How are product liability losses dealt with? lot of a product are regarded as one occurrence
How are the basic statistics relating to a treaty The basic statistics relating to a treaty are collated
collated? from accounts statements as sent and received
The first surplus property treaty limits are
determined at the highest possible level consistent
How are the first surplus property limits with the objective of securing the best possible
determined? terms
A better chance can be achieved by spreading one's
How can a better chance be achieved in acceptances across markets and to minimize the
reinsurance business? effect of claim fluctuation
A successful inward account can be operated only
How can a successful inward account be with proper management controls on prompt
operated? accounting and settlement of balances
The working XL reinsurance can be effective for
reinsurance of legal liabilities to third parties, as
the quantum of a loss for a liability claim is
How can a Working XL reinsurance be effective established only after an award has been made by a
for reinsurance of legal liabilities to third parties? court of law
National Scale Ratings, denoted with a prefix such
How can an insurer's or reinsurer's financial as 'mx' (Mexico) or 'ra' (Argentina), assess an
strength relative to other insurers and reinsurers insurer's or reinsurer`s financial strength relative to
in his home market be assessed? other insurers and reinsurers in his home market
How can gaps in coverage that are created by By negotiating a separate facultative reinsurance
reinsurance treaty exclusions be filled? contract for a particular policy or group of policies
A well-established rule of thumb for assessing
whether true risk transfer has occurred is the so-
How can it be assessed if true risk transfer has called 10-10 rule: there is a 10 percent probability
occurred? of a 10 percent loss of premium
How can the optimisation of net retentions be The optimisation of net retentions can be planned
planned? through possibility of reciprocal inward reinsurance
How can the portfolio transfer percentage of 35% The portfolio transfer percentage of 35 % to 40 % is
to 40% be arrived at? arrived at by 50% method
They tend to protect the outward treaty by
How do ceding insurers protect the experience of measures such as not utilizing the full treaty
outward treaty? capacity for more hazardous risks or arranging an
excess of loss cover to protect the treaty portfolio
The reinsurance protects the reinsured against an
accumulation or aggregation of losses arising from
an identified event such as Earthquake, Flood,
How does a Catastrophe Excess of Loss ( Cat XL) Cyclone, Riots, etc., which may affect a large
reinsurance protect the reinsured? number of risks.
American Accounting Association defines
accounting as Accounting is the process of
identifying, measuring and communicating financial
How does American Accounting Association information to permit informed judgement and
define accounting? decisions by users of the information
MIGA addresses these concerns by providing
political risk insurance for foreign investments in
How does MIGA address concerns about developing countries and dispute resolution
investment environments and perceptions of services for guaranteed investments to prevent
political risk? disruptions to developmentally beneficial projects
How does reinsurance help when a single event Reinsurance provides the financial stability to
produces a claim or series of claims of very high insurers in such eventualities by paying the
magnitude through accumulation? reinsured portion of the loss
By protecting reinsurers from catastrophic losses,
as well as an accumulation of smaller losses,
retrocession stabilizes reinsurer results, thereby
How does retrocession stabilize reinsurer results? spreading the risk
The programme must be flexible to accommodate
increasing values due to inflationary trends and
How flexible should the programme be? improvements in technology
GIC Re is protected for its own retention through
Risk and Catastrophe Excess of Loss reinsurance
How is GIC Re protected for its own retention? programmes.
GIC Re targets inward overseas reinsurance
How is GIC Re targeting an inward overseas premium by creating a presence in the Middle East,
reinsurance premium? the Soviet block and Far East
How is the amount ceded to a surplus treaty The amount ceded to a surplus treaty is normally
normally expressed? expressed in the number of lines it contains
The ceding commission is calculated on the ceded
premium by applying the agreed percentage as set
How is the ceding commission calculated? out in the treaty slip and agreed
How is the financial strength of insurers referred The financial strengths are referred to differently as
to? `very strong` `strong` to `poor`
The ideal level of retention has been vaguely stated
as being low enough as not to be involved in the
majority of the claims and yet high enough to keep
the insurer from being too greatly exposed in any
How is the ideal level of retention stated? one loss.
The liability limit and deductible are aggregated
How is the liability limit and deductible across all coverages and risk exposures and is not
aggregated in Multi- Line / Multi- Year Package? set individually
The maximum liability for the second surplus treaty
How is the maximum liability for the second is determined by reference to the premium ceded
surplus treaty determined? under the treaty
The operation of an insurer or reinsurer is carried
out through underwriters in his employ who
How is the operation of an insurer or reinsurer interface with underwriters of other insurers and
carried out? reinsurers directly or through brokers
The optimum capacity of the treaty is determined
How is the optimum capacity of the second by trying out different limits and noting the
surplus treaty determined? resultant premium to liability balance
A precise definition of one event is sought to be
How is the precise definition of one event sought achieved by incorporation of a time limitation
to be achieved? known as "hour's clause", in respect of such perils
The premium for an excess of loss cover is usually
expressed as a percentage (the rate) of the gross
How is the premium for an excess of loss cover premium income written by the reinsured for the
usually expressed? type of risk or class of business covered.
How is the severity of an earthquake expressed? It is expressed in the Modified Mercalli Scale
The acceptance limit of a reinsurer should be
How large should the acceptance limit of a sufficiently large to make it attractive for the ceding
reinsurer be? insurers and brokers to offer business
Treaties remain in force for long periods of time
and are renewed on a fairly automatic basis unless
How long do treaties remain in force? a change in terms is desired
The results would be normally watched over over 3
How long would the results be normally watched to 4 years period when the quality of the treaty
over? would be definitely known to the underwriter
If loss experience is lower than minimum rate as
How much would the reinsurer pay if loss agreed then the reinsured pays the minimum rate
experience is lower than minimum rate? of premium.
How often is an appraisal of the programme A constant appraisal of the programme is necessary
necessary? at every anniversary
The rating levels in the market needs to be
How should the rating levels in the market be governed by underwriting consideration than being
governed? left to market forces
In a year of catastrophe the strain to the resources
How should the strain of resources of the insurer of the insurer must be minimum provided the
in a year of catastrophe be? programme takes care of this aspect
The technical results of the insurer / reinsurer
How should the technical results of the needs to be stabilised by reducing fluctuations in
insurer/reinsurer be stabilised? claims to the yearly retained account
How should the underwriter determine the zones The underwriter must first determine the zones
which may be affected by an earthquake damage which may be affected by damage from a single
from a single event? event with the aid of seismic map
How were reinsurers chosen traditionally? TRUE
How will an excess of loss reinsurance
arrangement with deductible of 50,00,000 and 1,00,00,000 Xs 50,00,000
agreed limit of 1,00,00,000 be expressed?
Identify a characteristic which is very close to
Proportional treaties. These are usually negotiated on a continuous basis
Identify the correct option for A Ltd. a reinsurer
who wants to know whether it has the right to
deduct the balance due to it in case the insurer is
insolvent. Yes, such right exists
Identify the correct option for ABC Ltd. an insurer An insurer may purchase numerous treaties until
who wants to know the range of reinsurance the desired level of reinsurance protection is
relationships under treaty reinsurance. achieved
Identify the matter that can be carried on the
profit commission. Tax can be levied on it
Identify the odd man out. Proportional
Share of original premium to be subject to
Identify the odd man out. deductions
Loss ratio equals (Earned premiums/Incurred
Identify the odd man out. losses) x 100
Identify the odd man out. Less deficit
Identify the odd man out. Facultative
Identify the odd man out. Tax defaults
Identify the odd man out. Risk Retention groups for improving profitability
Identify the odd man out. Date of incorporation
Generally, insurance is a much more complex
Identify the odd man out. phenomenon than a simple reinsurance
Identify the odd man out. Original risk
Identify the odd man out. Fraudulent claim
Identify the odd man out. Document loss
Identify the odd man out. Fire risks
Identify the odd man out. Life
Identify the odd man out. Current opinion
Identify the odd man out. Steering in a car
Identify the odd man out. Sliding scale of commission
Identify the odd man out. Pay-offs
Identify the odd man out. Policy to be signed by or on behalf of each party
Identify the odd man out. Claims payment
Identify the odd man out. Turnover wise statistics
Identify the odd man out. The insurer's memorandum of association
Identify the odd man out. Acquisition cost
Identify the odd man out. Timeliness of payment
Identify the odd man out. (Answer with regards
to reinsurance). Retrocession
Identify the parties to a reinsurance contract? Ceding insurer and reinsurer
If a ceding insurer has a ten line surplus treaty on
the basis of a maximum retention of 5,00,000,
what would be the capacity of the treaty to
absorb liability over and above the retention? It would be Rs50,00,000
If a company wants to devise a method to
increase its ability to write untested risk contract,
it would be:- A reinsurance contract
If an insurer wants to get into a reinsurance
contract, then its valid to first take the approval
of the insured. Do you agree? No, Disagreed
If there is a reciprocal exchange, all the business
If there is a reciprocal exchange how is all the exchanged with the insurer or reinsurer is
business exchanged with the insurer or reinsurer summarised in a sheet, showing cessions on one
summarised? side and matching acceptances on the other side
A Line is equal to the ceding insurers retention
If you compare "line" and "bordereaux", the where as bordereaux refers to the statement of
distinguishing point would be. premiums & claims
If you compare GIC and LIC in the context of Post nationalisation, GIC became the Indian
reinsurance, you would find that:- reinsurer
If you want to create a term for defining
accounting which of the following would it not
be? Generation of profit
If you want to create a term for 'reinsurance
company', which of the following would it be? Place where insurance company can pass on risk
If you want to create a term for the concept and
reason for which direct writing insurance
companies start to write inward reinsurance
business, which of the following would it be? 'Window' on international reinsurance markets
If you want to imagine something which can form
part of the corporate philosophy of insurer, what
would it be from the following options? Reinsurance programme
If you want to locate a similarity between
facultative and treaty reinsurance, what would it Both may be transacted on proportional as well as
be? non-proportional basis
If you want to propose a term for a concept
where the database access to the customers is
provided as an extension of the intranet to
download and use certificates of insurance or to
ascertain their own account balance status, what
it would be. Extranet
If you want to propose a term for a concept
which helps to get over capacity constraints in the
insurance market, what would it be? Securitisation
If you want to propose a term for a group which
play a role in the inward insurance business,
which of the following would it be? Regional reinsurance co-operation
If you want to propose a term for the document
which is used to collate the basic statistics
relating to a treaty as sent and received, what
would it be. Account statements
If you want to select an option which does not Enhanced risks
support the category 'requirements of quarterly
or periodical accounts received by the reinsurer'
which would it be?
If you want to suggest a definition for 'loss The definition will vary considerably according to
occurrence', for the purpose of excess of loss the type of reinsurance and the nature of the
reinsurance, what would it be? original business reinsured
Imagine what would be the frequency of change
in the reinsurance programme in a country like Change as and when necessary would help in a
India? developing country like India
In a corporate set up which of the following takes In a corporate set up the volumes in business,
away the focus from the critical role of the number of personnel, multiple locations take away
underwriter? the focus from the critical role of the underwriter
In a reinsurance company, an underwriter will be
responsible for the acceptance of business and
the profits made. Is this statement valid? Yes, it is a valid statement
In assessing surplus each treaty year would
normally be examined after three years, and any
In assessing surplus, when would each treaty year surplus arising would be transferred to revenue
normally be examined? reserves
It may be necessary to tender a provisional notice
of cancellation to the ceding insurer keeping mind
In case of treaties where the review show signs of the current trend of business, other business from
deterioration which of the following details have the insurer, overall relationship and any other
to be provided to the ceding insurer? special considerations
In finance reinsurance to whom does a life or In finance reinsurance, a life or non-life insurer
non-life insurer transfer a portion of his risk transfers a portion of his risk exposure to the
exposure? reinsurer
In higher surpluses and for facultative offer,
propose a solution as to what should be asked by
the reinsurers. Detailed underwriting data
In India credit agencies are required to obtain
license from the SEBI if engaged in the business of
In India what are the credit agencies required to rating of securities offered by way of public or
obtain? rights issue
In India, the Foreign Exchange Regulation Act
(FERA) governs the law of use of foreign exchange
in respect of insurance and reinsurance No, it's the FEMA Act, 2000 which would be
transactions overseas. Do you agree? applicable
In India, the Foreign Exchange Regulation Act
(FERA) governs the law of use of foreign exchange
in respect of insurance and reinsurance No, it's the FEMA Act, 2000 which would be
transactions overseas. Do you agree? applicable
In India, the IRDA monitors the solvency margins
of insurers and reinsurers as a key to measure
their financial health. Do you agree? Yes, I agree
In inward reinsurance business, retrocession is
required to enable acceptance of economical Yes, I agree
lines. Do you agree?
In London, one can participate in the
international reinsurance business through
membership of a number of underwriting
agencies. Do you think this is a valid statement? Yes, this is a valid statement
In order to save time and administration cost, a
treaty agreement can dispense with the
bordereaux. Judge the validity of the statement. Yes, this is a valid statement
In proportional reinsurance, the __________
shares liabilities of the insurer along with sum
insured, premiums and claims in the same
proportion as per agreement in the treaty. Reinsurer
In the case of facultative reinsurance, who signs In the case of a facultative reinsurance a policy is
the policy and issues it? issued and signed by the reinsurer
In the case of finite risk reinsurance how is the In the case of finite risk reinsurance the anticipated
anticipated investment income expressly investment income is expressly acknowledged as an
acknowledged? underwriting component
In the future, insurance will be required even
more but will be served in non-conventional
ways. Reinsurance also will follow suit. Judge the
validity of this statements. Both the statements are valid
All agreements between the ceding insurer and the
In what form are all the agreements between the reinsurer are by means of written and agreed
ceding insurer and the reinsurer? treaties
In what form is the saving made by the reinsurer The saving made by the reinsurer is passed on to
passed on to the insurer? the insurer in the form of more competitive rating
Premiums and losses are shared in the proportion
that the ceding insurer's retention and the
In what proportion are the premiums and losses reinsurer's share bear to the sum insured of the
shared in surplus reinsurance? original insurance
The larger the population of insured assets or
In which of the below situation will the accuracy persons or interests, the accuracy of probability of
of probability of loss keep improving? loss keeps improving
In which of the fields may one come across with
Facultative Obligatory treaty? Life reassurance
In which of the following cases would % of sum
insured retained reduce for risk with higher
exposure? Variable quota share
In your opinion, what would be needed for a
technical assessment of the extent of necessary
cover? Detailed data regarding portfolio protected
Inadequate spread of risks leads to fluctuation of
claim costs. Do you agree? Fully agreed
Increased fluctuations in the financial market is No, higher reinsurance prices driven primarily by a
the main reason for increase in demand for ART shortage of capacity in the retrocession market is
products. Is this a valid statement? the main reason
Inflation tends to cause higher claims without Yes, this is a justifiable statement
compensatory increase in sums insured. Is this
statement justifiable?
Information on large claims is one of the main
aspects to be looked in evolving a statistical
system. Is this a correct statement? Yes, this is a correct statement
Insurance companies have to be prepared to
accept the risk associated with which of the
following? Catastrophes like earthquake, tsunami etc
Investments of a long term nature are likely to
yield higher interest but what does such an It would mean illiquid asset or loss of higher
arrangement mean? interest due to premature closure
IRDA requires insurers to declare which of the The process of determining the assumptions of
following? assets and liabilities
It is a common practice among reinsurers to send
which of the following? Provisional Notice of Cancellation
It should be the endeavour of the __________ to
ensure that the various terms used in the
wordings are clear and unambiguous. Contracting parties
The formula for pure burning cost produces the
rate of premium to be applied to determine the
Judge as to which of the following statements, is treaty premium for adjustment at the end of the
correct:- treaty year
Judge as to which of the following statements, is Retention is a combination of the financial
correct:- consequences of risk and event based losses
The types of risk insured and the size of the sum
Judge as to which of the following statements, is insured would affect the degree to which the
correct:- reinsurer would be exposed to claims
Judge as to which of the following statements, is Separation is a risk factor which is included in the
correct:- schedule of retentions
Judge the statement : The excess of loss contract
is not concerned with any proportionate shares of
the original sum insured. This is a correct statement
Errors and omissions clause is designed to protect
Judge which of the following statement is valid? the ceding insurer against errors and omissions
The entire amount of insurance loss, including
deductibles but net of salvage and recoveries is
Judge which of the following statement is valid? known as ground up loss
It is envisaged that India would become the hub of
Judge which of the following statements are reinsurance markets of the Asian and African
valid? regions
Judge which of the following statements are
valid? Reinsurers serve a means of finance
Judge which of the following statements are A credit rating is a opinion which does not take
valid? deductibles into account
When considering the placement of the second
Judge which of the following statements are surplus treaty one should try to achieve a wide
valid? distribution among several reinsurers
Judge which of the following statements are Swap is an agreement to an exchange of risk under
valid? different terms
The objective of risk transfer is to enable a
Judge which of the following statements are customer to minimise the total cost of capital
valid? needed to deal with a risk by reinsuring
Magnitude of an earthquake is measured on the
Judge which of the following statements is valid? Richter scale
In India, a service tax of 5% is levied on direct
Judge which of the following statements is valid? premiums
The gross direct amount is expected to be subject
Judge which of the following statements is valid? to as wide a variation as the exposure permit
ICAI has submitted some recommendations to IRDA
Judge which of the following statements is valid? to assist for IFRS convergence
Adequacy of rate is not included in a summary
Judge which of the following statements is valid? sheet prepared for reciprocal exchange information
The absence of retrocessional support exerts
significant influence on the rate quoted by lead
Judge which of the following statements is valid? underwriter as the primary reinsurer
Inward reinsurance is written by both professional
Judge which of the following statements is valid? reinsurers and direct writing companies
A programme design can be successful if its
Judge which of the following statements is valid? evaluation and follow up exists in full measure
They should attain professional qualifications and
Lloyd's underwriters and brokers must do more comply with the most stringent solvency norms and
than prove their talents within Lloyd's. What rigorous codes of practice enforced by both the
should they attain? professional bodies and the Regulator
M Ltd. wants you to design a sentence which All the business ceded to the pool is retroceded
would describe a feature of reinsurance pool. back to the members with an almost 100%
Help it. reciprocity
Many ceding insurers continue to request
__________ from treaty reinsurers even though
the ceded business may not lend itself to such a
business relationship. Reciprocity
Many countries normally imposes a framework to
ensure that an insurer's liabilities are not
excessive in proportion to its assets. What is this
called? This is called "solvency margin" regulation
MNP Ltd an insurer is assured that the normal
method of reinsurance in the miscellaneous
department is the quota share basis. Advise. No, the normal method is surplus basis
MNP Ltd. a reinsurer wants to categorise quota
share treaty. Help. Categorise it as automatic reinsurance
MNP Ltd. a reinsurer wants to know more about
the set-off clause in a reinsurance agreement. This clause permits each party to net amounts due
Explain. against those payable before making payment
MNP Ltd. claims that each member of the Lloyd's
syndicate has unlimited liability. Is this correct? Yes, this is correct
MNP Ltd. wants you to design a sentence which No profit commission statement would be rendered
would describe a feature of a 'cancelled treaty'. in the year of cancellation
MPQ Ltd. a reinsurer claims that in respect of
specialised classes of insurances there is a risk of
accumulation. Is this statement correct? Yes, this is correct
Mr. A wants to understand the concept of
reinsurance with the help of an analogy. Devise
an analogy. Shock Absorber
Mr. A, a student of insurance claims that initially,
the reinsurance business excluded the facultative No, the student is wrong Infact, initially only
transactions. Argue. facultative transactions were included
Mr. A, a student of reinsurance wants to know
the exact principle which enables the insurer to
cope with variations in the patterns of actual
losses. Probability theory
Mr. C, a insurance student argues that the
principle fo 'causa proxima' is central to the
relation between insurer and the reinsurer. No, the student is wrong Its the principle of
Argue. uberrima fides
Mr. X, a student of insurance claims that the
oldest reinsurance was under marine insurance.
Argue. Yes, the student is right
Multi-trigger cover is a device to transfer a part of
business by an insurer to another insurer or
reinsurer for a specified period and to
appropriate the fund obtained by a transfer of
business for policy reserves to strengthen its
financial position. Do you agree with this
statement? No, financial reinsurance is that device
'Obligatory contract' is the name that one can
give to the category of:- Treaty reinsurance contracts
Of the total captive insurers operating worldwide,
35% of them are located in India. Do you agree? No, they are located in Bermudas
On what basis is the amount of ceding
commission decided by the ceding insurer and On the basis of the insurer`s expected business
reinsurer? profit, present value and new business expenses
On what basis may treaty reinsurance be
transacted? Proportional or non-proportional basis
Once a business is finalized, electronic records are
generated from information input made only once
Once a business is finalized, how are electronic and which instantaneously pops up in technical,
records generated? accounts and statistical departments
One danger in accepting large premium
reciprocity from a treaty with a low average
profitability is that the profit is subject to wide
fluctuations. Do you agree with this statement? Yes, I agree
Originally all reinsurances were transacted Because of high administrative costs
facultatively. Why was it replaced with treaty
insurance?
Over the last decade reinsurers felt that war risk
cover could no longer be considered as a mere
extension of the basic cover and should be This resulted in reinsurers asking for a separate rate
considered as an important cover in its own right. for the war risk premium only under the excess of
What did it result in? loss cover
Per risk and per event are types of __________. Retention
Plan a correct objective/goal for undertaking a
reinsurance programme. Reducing the probability of ruin
Plan as to what can be done to denote minimum
accumulation from two risks? Include Two Risk warranty within the contract
Please explain 'Rate on Line' to ABC Ltd a
reinsurer. It is the rate applied to the limit of cover
PQR Limited an insurer claims that analysis of the
gross portfolio is must before considering the
best suited reinsurance arrangement. Is this
correct? True
PQR Limited an insurer wants to categorise the
concept of 'portfolio of risk' under an appropriate
category. Help it. It is one of the factors which influences retention
PQR Ltd a reinsurer wants an explanation for
Sliding scale of commission with respect to its Sliding scale commission vary from agreement to
consistency in various agreements, businesses agreement and also for type of business and
and countries. country of ceding insurer
PQR Ltd claims that Duff & Phelps is a reputed
audit firm and not a rating agency. Is this true? No, this is not true
PQR Ltd claims that Lloyd's syndicates are
arranged on an entirely different basis as
compared to reinsurance companies. Do you
agree? Yes, I agree
PQR Ltd wants an explanation for 'flat rate of It is equal to agreed percentage of commission x
commission'. premiums ceded less returns and cancellation
PQR Ltd wants an explanation for the broker's
strategies to attract new clients. Explain. Brokers can turn to catastrophe modeling
PQR Ltd wants to know a benefit available to the
policy holders due to multi-line package. Explain. It provides more stable risk cover costs
PQR Ltd wants to know a benefit of non- The reinsurer may have a say in the rating of the
proportional treaties to the reinsurer. Explain. cover
PQR Ltd wants to know about 'Digital Nervous It refers to a system where everyone has access to
System', the word coined by Bill Gates. Explain. data that enriches his job and performance
PQR Ltd wants to know as to which line of
insurance business uses reciprocal reinsurance
trading the most. Explain in brief. Fire and hull lines
The key objective is to attain the goal behind the
PQR Ltd wants to know the key objective in a underwriting philosophy through implementation
reinsurance organisation. Explain. and effective monitoring
PQR Ltd. a ceding insurer wants an explanation It's a place where the Lloyd's brokers negotiate
for the term 'Underwriting room at Lloyd's'. specific insurance programmes with expert
Explain in brief underwriters
PQR Ltd. a reinsurer wants short explanation as to There is a considerable difference of monetary limit
the difference between Gross line and Net line. between the two
PQR Ltd. a reinsurer wants to add efficiency to
retention. Formulate a suggestion. Probable Maximum Loss concept (PML) can help
PQR Ltd. a reinsurer wants you to identify a
specific feature of 'loss occurring basis'. Help. Simplicity
PQR Ltd. a reinsurer, claims that 'professional
indemnity' line of business tend to produce
extremely favourable results. Is this a valid claim. No, it tends to produce extremely adverse results
PQR Ltd. an insurance company, claims that since
it has been put under credit watch and is given a
positive designation, then its rating would be
raised. Is this claim valid? Yes, the claim is valid
PQR Ltd. an insurer claims that one of the uses of
the information produced from a statistical base
is financial planning. Is this a valid claim? Yes, it's a valid claim
PQR Ltd. an insurer claims that reciprocal
exchange of treaties enable the ceding insurer to
add to its net premiums and net profits. Discuss
the validity. Yes, this is a valid claim
PQR Ltd. an insurer expresses that surplus
methods and quota share methods can never be
combined. Do you agree? Absolutely disagreed
PQR Ltd. an insurer wants to know the real nature The concept of reinsurance cannot exist without
of reinsurance. Explain in brief. there being a direct insurance
PQR Ltd. an insurer wants to reduce its liability in
a certain area and feels that treaty reinsurance
can help. Comment. Obsolescent
PQR Ltd. claims that a concept called 'weather
derivatives' exists which can be of interest in
agricultural sector. Is this a valid claim? Yes, this is a valid claim
PQR Ltd. claims that options are where two
parties agree to a trade in the future but one
party retains the right to opt out of the trade. Is
this a valid claim? Yes, this is a valid claim
PQR Ltd. claims that when earned premiums and
incurred losses are equal, the loss ratio will be
100%. Do you agree? Yes, I agree
PQR Ltd. claims that when earned premiums are
50,000 and Incurred losses are 25,000, loss ratio
is 200%. Do you agree? No, the ratio would be 50%
PQR Ltd. wants an explanation for 'Multi-
line/Multi-year package'. Help it. It is a new form of reinsurance
PQR Ltd. wants an explanation on any one Preference capital
principle of reinsurance. Help it.
PQR Ltd. wants to improve and stabilise its net
retained loss ratio. Suggest. Proportional reinsurance may help
A derivative security is a financial security whose
PQR Ltd. wants to know about derivative value depends upon primary valuables such as
securities. Explain. stock prices, exchange rates and interest rates
PQR Ltd. wants to know about the approach of a They should encourage getting rated since that will
new insurer in the market towards credit rating. help the potential customers in their choice of using
Explain. a new insurer
PQR Ltd. wants to know as to why leading
professional reinsurers and intermediaries get Such involvement adds strength to the programme
involved in reinsurance programme design stage. design in terms of placement of reinsurance covers
Explain in short. that constitute the programme
PQR Ltd. wants to know the broad major Underwriting, Accounting, Administration and
structure of a reinsurance department. Explain. Information, research and statistics
PQR Ltd. wants you to design a sentence which
would describe a feature of Lloyd's motor It is the largest private motor vehicle insurer in the
underwriters. UK
Predict the consequence of the situation where The reinsurer would not share the "commercial
the ceding insurer becomes insolvent. fate" of the insurer
Predict what will happen if an insurer buys too
much cover for first layer of catastrophe cover? Premium will be lost
Premium is set on an integrated basis for the
whole package. Such packages are also designed Such packages are also designed as part of
as part of which of the following? `Enterprise wide Risk Management'
Preparation of the accounts is the responsibility
of the ceding insurer who alone possesses the
requisite information. Do you agree? Yes, I agree
Preparation of the accounts is the responsibility
of the ceding insurer who alone possesses the
requisite information. Do you agree? Yes, I agree
Prescribe a procedure which is described in treaty
wordings. Bordereaux
Propose a device to tackle contractual risk
emanating from the insured. Follow the fortunes clause
Propose a document which an intermediary
issues before the policy document. Cover note
Propose a formula for Original net rate. Premiums on net basis - original commission
Propose a name for the proportion of risk that is
retained by the cedant. Retention
Propose a name for the retention which is
required to be managed. Per risk
Propose a phrase for the concept of reinsurance
programme. Protection for gross business
Propose a plan for the optimisation of net
retentions. Create a reciprocal inward reinsurance
Propose a solution for a reinsurer who wants Go for retrocession
protection from catastrophic losses and desires a
stability in results.
Propose a solution for avoiding wide fluctuations
of profits, in the context of reinsurance Do not accept large premium reciprocity from a
programme designing. treaty with low average profitability
Propose a solution for simplifying the preparation
of treaty wordings. General and special conditions
Propose a special factor for hull lines of business. It's the claims
Propose a technical term for a 'reinsurance
company' from the following alternatives. Secondary market in insurance risk
Propose a technical term for proportional treaty
accounts. Blind
Propose ABC Ltd. an insurer a scientific method
for understanding the viability of a reinsurance
programme. Simulation and modeling studies
Propose an alternative for a reinsurer who
doesn't want mandatory acceptance of
reinsurance but simply a choice to accept or
reject it. Go for facultative reinsurance
Propose an important feature to ABC Ltd. an
insurer who is considering placement of cargo
treaties. Stability of the reinsurance arrangements
Reinsurance arrangement of the GIC Re are
reviewed annually and approved by the
Government of India. Do you agree? Yes IRDA approves it on behalf of the Government
Reinsurance arrangement of the GIC Re are
reviewed annually and approved by the
Government of India. Do you agree? Yes IRDA approves it on behalf of the Government
Reinsurance contract can be best categorised
under:- Contract of indemnity
Risks are to be grouped into which of the
following types? Small size, medium size and large size
Securitisation allows issuers to convert their
underlying assets into securities or pass through
certificates (PTCs). Do you agree? Yes, I agree
Since treaty reinsurance provides __________
cover the insurer is guaranteed a definite amount
of reinsurance protection on every risk which he
accepts. Automatic
Since when has the Lloyd's led the way in the
aviation market? Since 1911
Since World War what percentage of reinsurance
business written in the United Kingdom is placed
in Lloyd's? 50%
Some reinsurers make it a practice to make their
acceptances subject to which of the following? Notice of cancellation at anniversary date
Sometimes insurance companies have to accept Yes, quite possible
the risk associated with lack of financial capacity.
Do you agree?
SOP Ltd. an insurer claims that the past
experience of the treaty affects the calculation of
the rate. Decide. Yes, it is correct
Stabilising the claims ratio is a function of
reinsurance. Judge the validity of this statement. Yes, its valid
The number of individual risks constituting the
Stability in the claims ratio will depend on:- portfolio
Standard and Best is one of the most popular
credit rating agency. Do you agree? There is no such credit rating agency
Suggest a clause to PQR Ltd. a reinsurer which
deals with giving advice when a loss reaches an
agreed amount. Preliminary loss advice
Suggest a clause to PQR Ltd. a reinsurer which
deals with the attachment of individual cession. Business covered clause
Suggest a clause which allows the ceding insurer
to effect other reinsurances in priority so that
there is an additional treaty which protects the
net account only? Net retained lines clause
Suggest a clause which can be a subject matter of
great discussion due to its considerable variation
in practice? Follow the fortunes clause
Suggest as to which option would hold true if the
IMF wage index fluctuates below 10%? The IMF wage index will not be applicable
The __________ department is to be kept duly
informed for all definite cancellations and
changes in terms. Accounts
The __________ strengths are built into the
programme design which enables continuous and
assured reinsurance protection throughout a
programme year. Reinsurer's
The administration of an inward portfolio will
involve an expense and therefore premium per The premium should be sufficient enough to justify
contract should be sufficient for which of the the cost involved in having the business in the
following? books of the insurer / reinsurer
The agencies carry out periodic reviews of all If the client does no cooperate the credit rating
published ratings and what do they do if the agency will still carry out the review on the basis of
client does not cooperate? the best available information
Whether the insurer has procedures or processes in
The answer to which of the following questions place for reviewing and accepting or denying
impact the delegated authority? claims?
The formula for calculating 'profit to the treaty'
does not contain 'incurred claims' but contains
'estimated claims'. Judge the correctness of this
statement. This is incorrect It contains incurred claims
The function of the __________ is to reimburse Reinsurance commission
the ceding insurer with pro-rata amount of what
he has paid in acquiring the business - agency
commission and expense of management.
The limits of __________ are set out by the
management and approved by it. Retention
The loss to the reinsurer will not be increased due
to the inability of the ceding insurer to collect
from another reinsurer. Where will this be
stated? Insolvency of other insurers clause
The only disadvantage of reciprocal trading is that
it does not allow the ceding insurer to add to its No, infact, reciprocal trading allows the ceding
net premiums and net profits. Do you agree? insurer to add to its net premiums and net profits
The reinsurance commission will cover only the
ceding insurer's expenses. What is this usually
termed as? This is usually termed as overriding commission
The slip notes serve the purpose of evidencing
eventual acceptance of a share of the risk/treaty
ceded by signing underwriters. Would you agree
with this statement? Yes, I agree with this statement
The status of the ceding insurer is that of a/an
__________. Reinsured
The study and analysis of cost will enable
minimum cessions. Verify the validity of this
statement. It will enable optimum cessions
The underwriting clause states that premium is to
be paid to the reinsurer at the same rate as No, this is not a valid statement, since it is the
received by the ceding insured. Is this valid? original conditions clause which states this
There is a market practice that the intermediary
issues a cover note to the insurer. Do you agree? Yes, this is true
There may also be provision for termination
without notice in the event of certain other
circumstances stipulated in the contract. What is
it known as? This is known as "Sudden Death Clause"
72 consecutive hours as regards a hurricane,
To how many hours is the duration and extent of typhoon, windstorm, rainstorm, hailstorm and or
any "event loss occurrence" limited to? tornado
The slip is initially presented by the broker to
To whom is the slip initially presented by the underwriters who are respected in the market for
broker? their acumen to quote
A dispute would be referred to single Arbitrator or
to two Arbitrators, one to be appointed in writing
by each party, or in the case of disagreement
between the two Arbitrators, to an Umpire to be
To whom will a dispute be referred to? appointed in writing by a mutually agreed authority
To whom will surplus over and above the
retention be allotted? One or more reinsurers
To whom will the balance of loss over and above Reinsured
the total of retention and agreed XL reinsurance
cover limit revert?
Treaty reinsurance reinsures risks on individual
basis. Debate. No. It's the facultative reinsurance which does so
Treaty wordings are generally standardised
throughout the world. Debate. Not standardised
Trigger cannot be determined as a pre-agreed
percentage. Discuss the validity of this statement. Not a valid statement at all
Under a quota share arrangement, if the
retention of 10% for a sum insured of 5,00,000,
gets reduced to 7.5% if Sum insured is raised to
50,00,000, this phenomena falls under. Variable quota share
Under a reinsurance contract an __________ is
indemnified for losses occurring on its insurance
policies covered by the reinsurance contract. Insurer
Under Excess of Loss contracts, the reinsurer
agrees to indemnify the reinsured for losses that
exceed a specified monetary amount identified by
the reinsured. What is such an identified amount Such an identified amount is the deductible also
known as? known as 'excess' or 'priority' or 'underlying'
Under surplus method, who decides the limit of
liability which he wishes to retain on any one risk
or class of risks? Ceding insurer
Under surplus treaties the ceding insurer provides
the reinsurers with a list detailing the risks ceded
to the treaty. What is this list called? Bordereaux
Under the proportional treaty, the reinsurer's
liability commences first and than the liability of
ceding insurer starts. Do you agree this is true? No, actually both the liabilities start simultaneously
If it is assumed that that the expiry periods of
Under which of the folloiwng situations can the cessions under the treaty are uniformly spread
mean expiry period be fixed at the middle of the through the treaty year the mean expiry period can
year? be fixed at the middle of the year
Until when does the ordinary rule as to disclosure Only up to the time the contract is concluded but
of material facts operate? under a treaty something more may be required
Verify place of occurrence of ceding Between gross direct business and net retained
arrangements. business
Verify the right combination of groups for risk
evaluation. Small size, medium size and large size
Losses paid and included in the accounts for the
What are incurred losses? year in question
What are the advantages of larger premium Creation of large reserves and reduction of tax on
reciprocity? profits
What are the major and popular names of credit A.M. Best, Standard and Poor, Moody's and Duff
rating agencies worldwide? and Phelps
What are the other methods in use for the Other methods in use for the calculation of
calculation of portfolio premium termed as? portfolio premium are termed the "eighth",
"twelfth" and twenty-fourth" systems
Reinsurance intermediaries are innovating and
What are the reinsurance intermediaries doing in constantly upgrading their catastrophe and
order to be relevant and continue to do business? financial analysis software
Reinsurers are growing increasingly concerned at
What are the reinsurers concerned about with the fact that they rarely share the fortunes of the
respect to catastrophe covers? ceding insurer on catastrophe covers
They are ready to offer adjustments in commission,
What are the reinsurers ready to do in order to profit commission and reciprocity terms to keep the
keep the treaty exchanges balanced? treaty exchanges balanced
What are the three common and notable types of
captive insurers? Fully-owned, rent a captive and protected cell
What are the three ways in which techniques of Risk Transfer, Risk Retention Financing and Asset
risk management are pursued? Management
Total loss and general average which affect all cargo
What are the two distinct classes of Marine Cargo on board the vessel and particular average claims
loss exposures? which need not affect all the cargo
The two essential factors for a recovery under a
non- proportional reinsurance are that the ceding
insurer has sustained a loss covered by the
reinsurance and that such loss exceeded a
What are the two essential factors for a recovery previously agreed threshold limit, also called the
under a non-proportional reinsurance? 'deductible'
What are the two ways in which the limits of
surplus can be stated? Sum insured and Probable Maximum Loss
Computer software programs are now available to
What can be used to enable modelling studies? enable modelling studies
What can one think of when dealing with markets One can think of more than 100% premium
of lower average profitability? reciprocity to balance the exchange of profit
What can the organisation for underwriting in an The organisation for underwriting in an insurer with
insurer with multiple locations impact on? multiple locations can impact on monitoring
In the absence of reinsurance such fluctuations may
What could be the impact due to major call for untimely increase in the premium rates for
fluctuations in claim costs in the absence of direct business which can affect the overall
reinsurance? business underwritten
What did few insurers do for additional capital
during the fall out of conventional reinsurance Few insurers went to equity markets for additional
capacity? capital
What did the increased growth of project It resulted in increased need to reinsure,
insurances and aviation result in? particularly on facultative basis
What did the Indian Insurance Companies Indian Insurance Companies Association initiated
Association initiate in 1966 to increase the the formation of Reinsurance Pools in Fire and Hull
retained premiums in the country? to increase the retained premiums in the country
What did the market Reinsurance Programme The market Reinsurance Programme aimed for
aim for? increased net retentions
Asset Management refers to the professional
What does Asset Management refer to? management of investments such as stocks and
bonds along with real estate, set realistic goals to
grow the insurer`s / reinsurer`s wealth and measure
the performance
CreditWatch highlights the potential direction of a
rating, focusing on identifiable events and short-
term trends that cause ratings to be placed under
What does CreditWatch highlight? special surveillance
This clause states that reinsurances are fully subject
to the same terms and conditions as the original
What does follow the fortunes clause state? insurance
IRIS provides for an integrated approach to
monitoring and analysing the financial health of
What does IRIS provide? insurers and reinsurers
What does portfolio premium withdrawal take
care of? Readers
What does the "solvency margin" regulation It relates the free reserves and assets of the insurer
relate? to the written premium income
The analytical process in evaluation by an agency
incorporates a host of quantitative and qualitative
measures, including comparisons to peers and
industry standards as well as assessments of an
What does the analytical process in evaluation by insurer's and reinsurer`s operating plans,
an agency incorporate? philosophy and ma
Once agreed, Lloyd's central accounting system
What does the central accounting system at ensures the claim is settled directly to the broker's
Lloyd's ensure once the claims payment is account and debited from the relevant
agreed? underwriting syndicates
It establishes communication system & procedures
for preliminary loss intimation/survey/technical
What does the claims control clause establish? support
This deals with the commencement of reinsurance
What does the commencement and termination and the manner and the circumstances in which it
clause deal with? can be terminated
The doctrine of good faith calls for the disclosure by
the reinsured to the reinsurer of every material fact
What does the doctrine of good faith call for? relating to the risk to be insured
In the first instance intermediary understands and
What does the intermediary understand in the consults with the reinsured to properly represent
first instance? him to the reinsurer/s
What does the involvement of professional Their involvement at the design stage lends to
reinsurers and intermediaries at the design stage realism and synchronization with what is best and
lend to? available from the world reinsurance markets
It compels and insurer to adjust its retention
What does the lack of hard currency to pay for upwards and with need for government to act as
reinsurance sometimes compel? reinsurer of last resort
What does the market offer for those companies The market offers unrivalled opportunities for them
which do not wish to establish their own to participate in international reinsurance business
reinsurance organisation in London? through membership of one of a number of
underwriting agencies
It promotes Foreign Direct Investment (FDI) into
What does the Multilateral Investment Guarantee developing countries to help support economic
Agency promote? growth, reduce poverty, and improve people's lives
A profit commission on an "Accounting year" basis
requires all transactions for the same treaty period,
What does the profit commission on an without reference to underwriting year, to be
"Accounting Year" basis require? included in the same profit commission statement
The rating of first layer of the catastrophe cover
What does the rating of first layer of the depends very much on the underwriting data and
catastrophe cover depend on? past record of large losses
It relies upon loss information by limit exposure
What does the variable quota share method rely and assists the ceding insurer with flexibility to
upon? improve quality of retained risk
Treaty reinsurance consists of an agreement
between the original insurer and reinsurer whereby
the reinsurer automatically accepts a certain
liability for all risks falling within the scope of the
What does Treaty Reinsurance consist of? agreement
If management sets retention limits too low, they
What happens if management sets retention may find they are ceding too large a part of their
limits too low? premium income to their reinsurers
It results in loss of interest to the reinsurance
What happens if payment to reinsurers are frozen markets, a diminution of the cover and, eventually,
for months? an increase in rates
What happens if the PML estimate is proved The insurer's retained share of loss and the
wrong by an actual loss? reinsurer's share of loss, both get unduly increased
What happens to an agreement in the event of
war between India and the country in which the
reinsurers reside or carry on business or are The agreement shall be automatically terminated
incorporated? forthwith
The use of debt, hybrid and equity tools such as
What has been structured to finance retained bonds, options and hedges are actively seen
risk? structured to finance retained risk
The wider use of computers and
What has led to the a growing preference for telecommunications has led to a growing
simplified administration procedures? preference for simplified administration procedures
What has made it possible for insurers to produce EDP techniques have made it possible for insurers
reinsurance accounts themselves at a minimum to produce reinsurance accounts themselves at a
cost thus saving the reinsurers / brokers a great minimum cost thus saving the reinsurers / brokers a
deal of administrative effort? great deal of administrative effort
What has one got to remember in considering the
additional profit accruing from increased
premium retention? It is personal in nature
The WTO has been actively promoting free trade in
What has the WTO been actively promoting? services
What have many large manufacturing or trading
organisations established to look after some of
the parent organisation's insurance needs? Insurance subsidiary companies
What have the insurers and reinsurers adopted in To simplify the preparation of treaty wordings most
order to simplify the preparation of treaty insurers and reinsurers have adopted a system of
wordings? general and special conditions
When a reinsurer accepts a share in a proportional
What is a reinsurer doing when he accepts a treaty he is virtually handing to the ceding insurer's
share in a proportional treaty? underwriter his pen and cheque book
The trigger can be a pre-agreed percentage of net
What is a trigger? written premiums.
Facultative reinsurance is defined as "a reinsurance
contract under which the ceding insurer has the
option to cede and the reinsurer has the option to
What is facultative reinsurance? accept a specific risk of a specific insured"
What is known as 'cash loss request'? The correct option is
The total of all calculated premiums would give the
correct gross portfolio to be withdrawn by the
ceding insurer from his current reinsurer, subject to
deduction of reinsurance commission, and
What is known as portfolio transfer? transferred to the renewing reinsurer
Advice to be given to the reinsurer when a loss
reaches an agreed amount (often the same figure
as for cash loss) even if the ceding insurer does not
What is known as 'preliminary loss advice'? request special settlement
Loss portfolio transfer is a method for insurers to
use reinsurance to effectively discount or
What is loss portfolio transfer? supplement their loss reserves
It is not prudent in the long term to buy reinsurance
What is not prudent in the long term? from the cheapest available sources
A Risk Retention Group is a corporation owned and
operated by insurance companies, that band
together as self-insurers and forms an organization
that is chartered and licensed as an insurer in at
What is RRG? least one state of US to handle liability insurance
Swap is an agreement to an exchange of risk under
What is swap? different terms
Gross premium income is usually considered as
being all premiums written by the reinsured during
the contract period less return premiums,
cancellations, premiums on excluded risks and
premiums on reinsurances which reduce the
What is termed as Gross Net Premium Income - reinsurer's exposure. This is termed as Gross Net
GNPI? Premium Income GNPI.
The additional surplus treaty is termed as a second
What is the additional surplus treaty termed as? surplus treaty
What is the aim of Gross to Net evaluations? The aim is to even out wide fluctuations in the gross
direct business by stabilising claims experience in
the net retained account
What is the disadvantage of switching By switching markets one looses the goodwill and
reinsurance markets? reserves built up with an existing set of reinsurers
The fundamental approach in a Finite Risk
What is the fundamental approach in a Finite programme is an ultimate limit of liability to the
Risk? insurer or reinsurer known as `provider'
What is the hazard in granting underwriting or The agency may write large volume of premium
binding authority to another insurer or agency to regardless of quality, just to earn commission or
write business in behalf of an insurer or may exceed its authority involving the insurer or
reinsurer? reinsurer in difficulties
The absence of retrocessional support, when
market is hard, exerts significant influence on rate
What is the impact of the absence of quoted by lead underwriters as the primary
retrocessional support when market is hard? reinsurer
The intention is to cover a customized combination
What is the intention of financial hybrids? of event risks and financial risks
The most important feature of a multi-trigger cover
is the option that claims are paid by adjusting the
financial loss caused by a 'first trigger' say fire with
What is the most important feature of a multi- financial gain from a `second trigger` say an agreed
trigger cover? commodity price movement
What is the name of the rating system developed
by the National Association of Insurance
Commissioners in USA? Insurance Regulatory Information System (IRIS)
The objective of risk transfer is to enable a
customer minimise the total cost of capital needed
What is the objective of risk transfer? to deal with a risk by reinsuring
Its reinsurance is a surplus treaty which takes sum
What is the reinsurance arrangement of Life insured exposures on individuals in excess of USD
Insurance Corporation of India? 100,000
The relation between the insurer and the reinsurer
What is the relation between the insurer and is based on the principle of Uberrima fides, ie
reinsurer based on? utmost good faith
The surplus to be reinsured is based on the sum
insured and the maximum amount which the
ceding insurer is prepared to retain for his own
What is the surplus to be reinsured based on? account
Variable quota share is a method which the % of
retention varies for different limit of sums insured
What is variable quota share reinsurance? and reduces with increase in limit of sum insured
Maintenance of accurate statistics relating to
acceptances and their speedy and timely availability
What is vital for the successful conduct of is vital for the successful conduct of reinsurance
reinsurance business? business
What kind of a ceding insurer is not supported by A ceding insurer who is either inadequately
a reinsurer? capitalised, in financial difficulty or known in his
market to be a 'rogue'
On the higher surpluses, reinsurers will normally
What kind of information would the reinsurer want to know a great deal of background
want to know on higher surpluses? information dealing with rate levels and claims
The reinsurer gives the insurer automatic
What kind of power does the reinsurer give the underwriting power and therefore renounces any
insurer? possibility of refusing risks he does not like
Between the gross direct business and the net
What lies between the gross direct business and retained business lies a host of ceding
the net retained business? arrangements
An insurer must look for continuity, the right
philosophy of business, friendship and
What must an insurer look for? understanding with his reinsurers
What percentage of obligatory cessions does GIC GIC Re receives up to to 5 % obligatory cessions
Re receive from non life insurers in India? from non-life insurers in India
The commissions obtained under each arrangement
and the additional infrastructure involved in its
What provides the basis of determining the administration will provide the basis of determining
economics of each arrangement? the economics of each arrangement
What should a reinsurance contract involve in To be considered reinsurance for accounting
order to be considered as a reinsurance for purposes, a reinsurance contract must involve some
accounting purposes? transfer of risk to the reinsurer
For the portfolio premium to be mathematically
correct, the pro-rata premium applicable to the
What should be done for the portfolio premium unexpired portion of each cession would have to be
to be mathematically correct? calculated separately
What should be taken into account when
international reinsurance brokers produce a
portfolio of business? Brokerage
What should one bear in mind when examining One must bear in mind the impact of brokerage
the terms of any treaty exchange through an cost on the result of reciprocal profit from the
intermediary? inward treaty
What suggestion would you propose when it Reinsurer must be known for his financial
comes to determining the qualities of a reinsurer? soundness, reasonableness and promptness
What suggestion would you propose when it
comes to handling the relationship with an
intermediary? Continuity of relationship is very important
What was made compulsory by the Government To cede 20% in Fire and Marine Cargo to the Indian
in 1961? reinsurance companies
A major conclusion of their research was that
What was the major conclusion of the research `insurance industry is not adequately compensated
by the founders of Centre Re, Bermudas? for taking an unlimited risk`
For the purpose of evaluation of these outward
What will be the correct approach for the arrangements the correct approach will be to make
purpose of evaluation of the outward an arrangement-wise assessment of reinsurance
arrangements? cessions
What will be the loss ratio if the earned 40%
premiums amount to 50,000 and the incurred
losses to 20,000?
What will the reinsurance capacity depend on The reinsurance capacity available will depend
when placing the top surpluses on the large risks? much on the underwriting data proving satisfactory
What will the reinsurance capacity depend on The reinsurance capacity available will depend
when placing the top surpluses on the large risks? much on the underwriting data proving satisfactory
The study and analysis of cost will enable optimum
though not minimum cessions, not of risk
exposures only, but of results under each
What will the study and analysis of cost enable? arrangement
An insurer may be able to reinsure at terms which
are so advantageous to him that he may consider it
What would an insurer be able to do when the a shrewd financial move to reinsure as much as
supply of reinsurance exceeds demand? possible
Adverse underwriting results of proportional
treaties and resultant shrinkage of proportional
What would force the reinsured to increase per reinsurance capacities, may force the reinsured to
risk retention levels, beyond what their financial increase per risk retention levels, beyond what their
strength may justify? financial strength may justify
What would not be the proposed status of the
term 'commission earned' in today's reinsurance
business? Pro-rata recovery of acquisition costs
A technical rating of the basis cover would require a
study of the working exposures and a calculation of
What would the technical rating of the basis the pro-rata premium for total loss cover and a
cover require? suitable extra for the large GA claims
Ratings are put on CreditWatch when an event or a
deviation from an expected trend occurs and
additional information is needed to evaluate the
When are ratings put on CreditWatch? rating
When are the reinsurers not in a position to Reinsurers are not in a position to provide profit
provide profit commissions? commissions on the higher level surplus treaties
When insurers are individually small their retention
When are the retention levels very low? levels are very low
A programme design can be successful if its
When can a programme design be successful? evaluation and follow up exist in full measure
When can a quota share treaty be a satisfactory Only when the pattern of exposures per vessel
solution in the case of marine-cargo reinsurance? shows clustering around a certain level
An insurer or reinsurer in any market can define a
When can an insurer or reinsurer in any market rating level, higher than stipulated by the Regulator
define a rating level, higher than stipulated by the if there be such stipulation, as an internal guideline
Regulator? to transact for reinsurance
When can each policy be negotiated and placed If reinsurance is arranged on facultative basis, each
separately? policy can be negotiated and placed separately
If a pre-specified insurance loss occurs and the
When can the assured insurer exercise the put share price falls below a pre-defined level, the
option? assured insurer can exercise the put option and
raise additional capital at the agreed price
When considering the placement of the second
surplus treaty one should try to achieve a wide
distribution among several reinsurers. Do you
consider this is a valid statement? Yes, this is a valid statement
When did the F.A.I.R set up the F.A.I.R Non-Life F.A.I.R set up the F.A.I.R Non-Life Reinsurance Pool
Reinsurance Pool? with effect from 1.1.1974.
Risk Retention Group originated in the US with the
When did the Risk Retention Group originate? passing of Liability Risk Retention Act, 1981
Reinsurers tend to insist on bordereaux only if the
treaty is with a newly established ceding insurer to
enable the reinsurer monitor the ceding insurer`s
When do reinsurers tend to insist on bordereaux? use of the treaty
This solution comes in handy when a major loss
makes causes a crisis of liquidity and it is very
When does contigent capital come in handy? expensive or even impossible to raise fresh capital
Once the slip is signed down and a cover note
When does the intermediary take over handling formalized, the intermediary takes over handling of
of documentation for the reinsurer? documentation for the reinsurer
When the insurer is not able to make enough profit
When does the solvency ratios vary adversely and to be able to pay a reasonable dividend and to
attract the government`s / regulator`s retain a sufficient amount to increase the financial
intervention? reserve to support increasing assumption of risks
In certain cases the reinsurer reserves the right to
When does the treaty become approve the terms before the policies are issued
"obligatory/facultative"? The treaty thus becomes "obligatory/ facultative"
When insurers have a common management or This means that they keep a retention representing
common ownership they may resort to group the combined capacity of all the group companies
underwriting. What does that mean? and operate a group reinsurance programme
Where both portfolio premium and portfolio loss
are withdrawn from all the outgoing reinsurers at
the year end and corresponding entries are given to
the renewing reinsurers on the treaty for the New
When is a method known as "clean-cut" method? Year the method is known as "clean-cut" method
When is a transaction considered as a financing If there is insufficient risk transfer the transaction is
mechanism and is booked as a loan or liability considered a financing mechanism and is booked as
instead of an asset? a loan or liability instead of an asset
Coverage under a traditional insurance policy is
When is coverage under a traditional insurance "triggered" when the policyholder suffers a loss as
policy "triggered"? the result of an event caused by an insured peril
This step is not necessary if the reinsurer accepts
When is It necessary to advise the underwriting lines only for his net account and does not
position to the accounts section? retrocede part of business
When rate is applied to the limit of cover it is
When is rate known as "Rate on Line"? known as "Rate on Line".
Risk is generally transferred or or financed before
When is risk generally transferred or financed? the occurrence of a loss event
The financial reinsurance contract is terminated
When is the financial reinsurance contract when the ceding commission paid in the first year is
terminated? redeemed ordinarily in five to seven years
When is the Retrocession shares to be allocated The Retrocession shares to be allocated to the
to the members fixed? members are fixed every year
When reinsurances are ceded and accepted it is
important to establish the credit rating of the
reinsurer with reference to which of the His business continuity, ability to settle and his
following? country's foreign exchange position
When reinsuring facultativel the reinsurer's
knowledge of a particular risk or class or risk To back up the judgement of the original
helps. underwriter at the insurer`s office
Ratings may be changed, suspended, or withdrawn
When shall ratings given by credit ratings as a result of changes in, or unavailability of
agencies be changed, suspended, or withdrawn? required information or for other reasons
When a treaty includes provision for a profit
When should the ceding insurer prepare a commission, the ceding insurer must prepare a
statement to indicate whether the treaty is statement to indicate whether the treaty is showing
showing a profit or a loss? a profit or a loss
When the insurance market needed capital it
obtained it in the form of __________. Reinsurance
When was financial risk management
established? 1970s
When was the first reinsurance contract in fire
insurance business concluded? 1821
In the history of marine insurance the oldest known
When was the oldest known reinsurance contract reinsurance contract was concluded in 1240 in
concluded in the history of marine insurance? Genoa
When will a well rated insurer in a country be A well rated in a country would be poorly rated if
poorly rated? the country`s sovereign rating is poor
Where the insurers have a common management
When will the insurers resort to group or common ownership they may resort to group
underwriting? underwriting
When will there be a maximum limit per loss If coverage is on 'each loss each risk' basis, there
occurrence? may be a maximum limit per loss occurrence
If coverage is on a 'loss occurrence' basis, there may
When will there be an annual aggregate linked to be an annual aggregate linked to the reinstatement
the reinstatement provision? provision
The second surplus treaty would receive a risk only
where the original sum insured was larger than the
When would a second surplus treaty receive a amount of the ceding insurer's retention plus the
risk? amount allocated to the first surplus treaty
Where the results under a treaty are profitable, the
When would the reinsurer agree a further reinsurer may agree a further commission called a
commission called a profit commission? profit commission
Where a notice has been given the reinsurer must If he decides to terminate his participation, a
decide on continuation with the business. What definite notice of cancellation is given
should he do if he decides to terminate his
participation?
The Net Retained Lines clause will normally be
omitted where the treaty covers the reinsured's
Where will the Net Retained Lines clause be gross account or where the cover operates for
omitted? common account
With the simplest of arrangements in data
processing which is using a PC to turn out word,
excel or power point files and to send these via e-
Which of the following is the most efficient mail desktop to desktop is the most efficient
method of communication, data sharing and data method of communication, data sharing and data
storage? storage
Which is the most common form of reinsurance The most common form of reinsurance contract
treaty wordings? wordings are `treaty wordings`
Which is the oldest professional reinsurer still in
existence and now merged with Gen Re? The Cologne Reinsurance Company
Which of the following are examples of
reinsurance statistics required by managements
for effective control? Broker wise statistics
Custom-tailored to the unique needs of the client,
coverage provided on a multiyear basis, coverage
applicable to multiple lines or payoff can be
Which of the following are features of alternative triggered by multiple factors, rather than a single
risk transfer products? event
Which of the following are forms of reinsurance Surplus treaty, quota share treaty, variable quota
that is used to negotiate protection to a share treaty, facultative, facultative obligatory
programme? treaty, excess of loss treaty and stop loss ratio
Which of the following are largely US based Self insurance, Risk Retention Groups and Pool are
concept for alternative carriers? largely US based concepts for alternative carriers
Statistical requirements for complete analysis of the
portfolio underwritten and to ascertain exposures
Which of the following are main aspects to be and preperation of outward accounts and various
looked in evolving a statistical system? other books of records
Retrocession from ceding to GIC Re and the Pools
Which of the following are mandatory inward are mandatory inward reinsurance to insurers in
reinsurance to insurers in India? India
Arranging working covers on a per event basis and
Which of the following are measures aimed at dovetailing them into the catastrophe cover are
securing complete reinsurance protection at an measures aimed at securing complete protection at
economic cost? an economic cost
The anticipated incurred loss ratio to the gross and
Which of the following are very good indices for net accounts in a class are very good indices for
measuring the effect of the programme on measuring the effect of the programme on
retentions? retentions
Which of the following became the Indian
reinsurer post nationalisation? GIC
Which of the following became the main vehicle Proportional treaties
of reinsurance replacing facultative reinsurance,
by, the time of World War I?
Proportional methods if carefully structured, assist
Which of the following can be improved if to improve and stabilise net retained Loss Ratio
proportional methods are carefully structured? over a period of time
Which of the following can be included under
Engineering reinsurance business? Machinery breakdown
Which of the following can considerably increase Improper business administration on the part of the
the risk run by the reinsurer? insurer
A major fluctuation in claims costs can seriously
Which of the following can undermine the undermine the financial structure of an insurance
financial structure of an insurance company? company
Which of the following clause states in what
circumstances a recovery is available to the
ceding insurer and the extent of that recovery? Insuring clause non-proportional
Which of the following clauses of the reinsurance
contract covers both technical risk and
contractual risk? Follow the Fortunes clause
Which of the following clauses protects the net
retention by working excess of loss cover, right to
effect priority cessions and 'common account
excess of loss protection'? Retention clause
Which of the following concerns the risk run by
granting cover through an insurance policy? Risk emanating from the insured
Which of the following could cause imbalance to
a reinsurer's business and expose him to heavy Accepting too much business of a particular class in
losses? a particular territory
Which of the following credit rating agencies are
known to investing public in India? Credit Analysis and Research Limited (CARE)
Mergers, recapitalizations, voter referenda,
Which of the following events can cause ratings regulatory actions or anticipated operating
to be placed under special surveillance? developments
Class of business, type of reinsurance contract,
Which of the following factors affect underlying legislation of country of origin, types of claim,
statistical trends? currency and inflation
Which of the following factors influence The Insurer's Assets, Capital, free reserves, the
retention? portfolio of risks and corporate liquidity
Which of the following has emerged in the Finite reinsurance and and run-off covers have
segment of financing retention? emerged in the segment of financing retention
Changes in buying approach of purchasers of direct
Which of the following has impacted upon insurance through self retentions and alternative
retrocessional markets? means has impacted upon retrocessional markets
Which of the following helps in increasing An accurate and efficient information system helps
credibility of the primary insurer and helps in in increasing credibility of the primary insurer and
renewal of treaties? helps in renewal of treaties
Which of the following is a feature of treaty Treaty wordings are not standardised and different
reinsurance? countries and reinsurers have adopted their own
typical wordings for treaties
Full information as to the amount retained by the
Which of the following is a foundation of reinsured on the identical property on which the
reinsurance? reinsurance is requested
One method followed in the event of a cancellation
Which of the following is a method followed in of a treaty is to allow the cessions to run to their
the event of a cancellation of a treaty? natural expiry
Which of the following is a method of arriving at a
rate of commission based on the loss ratio of the
treaty during any one treaty year or during any
one underwriting year? Sliding scale commission
Which of the following is a preferred form for
retrocession of reinsurance accounts? Quota share treaty
To broaden the spread of the net portfolio by
Which of the following is a reinsurance related obtaining participations in the portfolio of risks of
objective? other insurers / reinsurers
Which of the following is a treaty where the
amount reinsured is expressed as being between
a minimum (say 20%) and maximum (say 80%)? Variable quota share treaty
Which of the following is also called original risk? Risk emanating from the insured
Which of the following is also known as Excess of Non-proportional reinsurance is also known as
Loss reinsurance? Excess of Loss reinsurance
Which of the following is an essential feature of a The profit commission statement agrees with the
review? accounted figures
It clearly brings about the obligatory nature of
reinsuring, in that the financial advisor binds
Which of the following is an essential feature of himself to cede and the reinsurer binds himself to
operative clause? accept
A ceding insurer may retain a proportion of the
ceded premium against the reinsurer's discharge of
Which of the following is considered as his obligations and is usually considered as
representing the unearned portion of premium representing the unearned portion of premium
ceded? ceded
Which of the following is covered by engineering Apartment breakdown, Boiler Explosion, Erection
insurance business? All Risks and Contractors All Risks business
Which of the following is distorted in highly
competitive markets or markets where there is a The whole calculation of profitability and
discernible competitiveness? fluctuation is distorted
Which of the following is equal to the ceding
insurer's retention? Line
Which of the following is included in the global
rating coverage of the insurance and reinsurance Life, non-life, health care, alternative risk vehicles,
industry? Lloyd's and reinsurance
Which of the following is increased by an
investment in the stock market? Cost of administration and exposure to capital loss
Which of the following is known as ceding Under surplus method the ceding insurer decides
insurer's retention? the limit of liability which he wishes to retain on any
one risk or class of risks and this is known as ceding
insurer's retention
If the loss is to be carried forward for a limited
period, it is most important that a breakdown
Which of the following is most important if the between each year's results is maintained of the
loss is to be carried forward for a limited period? final loss
Salaries of employees and office costs of the insurer
Which of the following is not included in the are not included in the calculation of the claims'
calculation of the claims costs? costs.
To ensure that insurers always have a sufficient
Which of the following is one of the main aims of margin of assets over estimated liabilities
insurance regulators? appropriate to the business that they conduct
The stability of a portfolio as it grows and in
contrast to the relative volatility of a small portfolio
Which of the following is referred to as balance? is referred to as balance
Which of the following is setting up
representative offices in targeted countries which
would then go on to become their actual offices
once it met all the local regulations of that
country? GIC Re
Which of the following is the most important and It is to set up an investment budget which takes
delicate tasks of the reinsurer? into account exchange rate fluctuations
Which of the following is vested with the
authority of regulating and controlling the
conduct of insurance business in India? IRDA
The regulatory framework, industry analysis,
Which of the following key areas are looked into business and product profile and selling and
by the credit rating agencies? distribution system
Which of the following limits the aggregate
amount of loss the reinsured would lose on a
given class of business in an annual period? Stop Loss or Excess of Loss reinsurance
Which of the following methods and forms are
taken up by the programme design? A renewed drive for optimum retained results
Which of the following must be considered Before arriving at the year's result for a losses
before arriving at the year's result for a losses carried forward to extinction basis, the result of the
carried forward to extinction basis? previous year's statement must be considered
Which of the following options is available to an He can write lines for his net account ie write such
insurer or reinsurer accepting reinsurance shares as can be retained by himself without
business? retrocession
Which of the following proposals is made to bring There is a proposal to build a "Reinsurance
together the main market players in one location Centre/Marketplace" in Rio de Janeiro to bring
in Rio De Janeiro? together the main market players in one location
Which of the following provides a wider spread
for the net retained portfolio of the insurer with
an improved balance thus ensuring greater
stability in underwriting surplus? Reciprocal exchange of treaties
Which of the following provides the policyholders The rating agencies assess the capacity of insurers
with a reliable opinion about the soundness and and reinsurers to settle claims This provides the
capacity of insurers or reinsurers? policyholders with a reliable opinion about the
soundness and capacity of insurers or reinsurers
Which of the following receives a higher rate of
ceding commission? Quota share treaties
Which of the following reinsurances is used in
protecting property risks loss exposures? Risk Excess of Loss reinsurance
The reinsurer may not decline risks falling within
the scope of the agreements and the insurer must
Which of the following rights are forgone by each allow all risks coming within the scope to be
party in a treaty reinsurance? covered
Which of the following risk carriers are included Self insurance, risk retention groups, pools and
in alternative transfers? captives
A suitable management information system is
Which of the following should be available to required to be in place to be able to constantly
constantly monitor the results of each acceptance monitor the results of each acceptance and the
and the inward portfolio as a whole? inward portfolio as a whole
Which of the following takes all rating decisions All rating decisions including decision to change a
including decision to change a rating? rating, are taken by the rating committee
Which of the following treaties have 'worldwide'
scope because of the nature of business
involved? Marine and aviation treaties
The methodology of assessment involves an
examination of the insurer's investment portfolio,
Which of the following will enable the rater to investment goals, asset quality and liquidity traits,
come to a conclusion about the risk profile of the all of which will enable the rater to come to a
portfolio? conclusion about the risk profile of the portfolio
Which of the following would assist to estimate If latest statisctics are not available then the trend
the incurred claims for the current year if latest of incurred claims ratios over a period would assist
statistics are not available? to estimate the incurred claims for the current year
Which of the following writes increasing inward
reinsurance from overseas markets? GIC Re
Which of the following years witnessed a
significant fall-out of conventional reinsurance
capacity? 1993 year end
Which type of reinsurance contract may involve
lots of administrative work? Facultative
Which were the two companies that were given
shares by way of retrocession in the pooled
business protected by excess of loss covers India Reinsurance Corporation and Indian
before nationalisation? Guarantee and General Insurance Company
While there are no standard contracts which of
the following is used and adapted to meet
individual insurers on-going reinsurance
requirements? Treaty and facultative contracts
Who among the following provide the capital that A mix of major investment institutions,
backs Lloyd's? international insurance companies and specialist
insurance investors provide the capital that backs
Lloyd's
Who can decide as to what extend a policy can be To what extend a policy can be pursued depends on
actively pursued? the standing of the insurer / reinsurer
This tool was developed by the founders of Centre
Who developed Finite Risk tool? Re, Bermudas, based on a research study
Captive is an insurer created and wholly owned by
its sponsors to provide a facility to aggregate,
Who is a Captive? insure and reinsure only their risks
The original insurer who , having issued a policy to
an insured to cover a certain risk, desires to relieve
Who is a reinsured or ceding insurer? himself of a part thereof
The insurer who accepts that part of the risk which
Who is a reinsurer? is reinsured
Insurers with substantial property premium are
Who is able to exchange business against their able to exchange business against their first surplus
first surplus property treaty? property treaty
Who is concerned with the service that the EDP
system gives, the assistance it provides to help
him function in a more efficient way and in the
timing of the service? The Reinsurance Manager
Who pays the balance of any loss that exceeds
the deductible, up to an agreed limit? Reinsurer
Who seeks for compliance for underwriter`s
qualification as one with requisite experience and
knowledge of the business? Regulator
Who should be followed to determine the
correctness of terms and conditions of a contract
and of monitoring the activities of the ceding
insurer's underwriter? A leader
Syndicates are supervised principally by the
Committee of Lloyd's rather than the Department
Who supervises the Lloyd's Syndicates? of Trade
The Lloyd's broker need to notify Lloyd's Claims
Whom should the Lloyd's broker notify about the Office and the leading underwriter who sets the
claims payment? policy terms and conditions
Whose duty is it to ensure that the accounts are
rendered to the reinsurers within the time
allowed by the agreement and also either party
must settle balances due to the other party
within the agreed period? Ceding insurer
The assessment of commitments has to be done
Why are accumulation control sheets zone wise and for this purpose accumulation
maintained? control sheets are maintained
Because catastrophe covers should be remote
Why are catastrophe covers completely enough not to be affected in any normal year, they
unsuitable for the burning cost method of rating? are completely unsuitable for the burning cost
method of rating.
Why are catastrophe covers normally split into
layers? For marketing and rating advantages
Local pools are established to minimise the total
Why are local pools established? reinsurance necessary outside a local market
Because finite risk solutions rely on time to average
Why are policies written on a multiyear basis? out losses policies are written on a multiyear basis
Why are statistical exercises carried out? Exercises are carried out to derive "as if" results
The captive companies are very often established in
Why are the captive companies very often "tax havens" to avoid tax-liability in the country of
established in "tax havens"? incorporation of the parent organization
Close to 90 percent of global reinsurers depend on
some form of retrocessional protection as a means
Why do 90 percent of global reinsurers depend both to cede a portion of their risk and to stabilize
on some form of retrocessional protection? their earnings
Insures welcome their getting rated as rating will
Why do insurers welcome their getting rated? help them to market their products better
Internationally specialist pools operate to assist in
Why do internationally specialist pools operate? terrorism, war and nuclear risks
Why do local companies have a smaller financial Because local investors often prefer more lucrative
base? short-term activities than insurance
Due to high growth potential compared to
developed markets attributed to its highly
untapped market, rising awareness and
Why do many reinsurers continue to focus on government initiatives to promote the insurance
Middle East and North Africa? sector
Marine and aviation excess of loss contracts,
because of their nature to transact insurance on the
Why do Marine and aviation excess of loss basis of underwriting year use "risk attaching"
contracts use "risk attaching" method? method.
Because ceding insurers have been demanding
more-sophisticated services, such as catastrophe
Why do smaller independent reinsurance brokers modelling, financial analysis and capital markets
find it difficult to keep up financially? analysis
It involves more administrative work as each offer
has to be scrutinized and separate data maintained
Why does facultative reinsurance involve more for retention, limits, rates and reinsurer/s involved
administrative work? for each facultative placement
Domestic business is easily manageable because of
lower costs and its being free from exchange
Why is domestic business easily manageable? controls
Why is it rare to see an insurer carry high Because a very substantial portion of the hull
retention protected by a working excess of loss premium is required to pay total loss and large
cover for Marine Hull reinsurance? partial losses

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"Project monitoring for delays" is a consideration

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