GROUP II SENIORS

- Mr. H.L. Tekchandani, Mr.R.C. Jaiswal, Ms. Nirmala M.Ravishankar, Mr.B. Sampath
Kumar and Mr. S.C. Mukherjee

REINSURANCE

1. Reinsurance is the insurance of the risk assumed by the

a. Insurer
b. Reinsurer
c. Intermediary
d. Non of the above

2. The percentage of statutory cession GIC will receive from all Indian non-life insurers
on all classes business underwriting by them is-
a. 20%
b. 16%
c. 15%
d. 12%

3. Reinsurance is always a contract of-

a. Probable maximum loss
b. Normal maximum loss
c. Indemnity
d. Estimated maximum loss

4. The transaction whereby the reinsurer cedes to another insurer or reinsurer all or part
of the reinsurance it has previously assumed
a. Retention
b. Retrocession
c. Reinstatement
d. Coinsurance

5. Every insurer shall file with the IRDA a photocopy of every insurance treaty slips and
cover notes of excess of loss cover in respect of that year, within
a. 30 days of the commencement of financial year
b. 60 days of the commencement of financial year
c. 90 days of the commencement of financial year
d. 15 days of the commencement of financial year

6. The obligatory cession received by the Indian Reinsurer shall be retro______ to the
ceding insurers, at lease
a. 20%
b. 10%
c. 25%
d. 50%

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7. Because of the different laws and insurance practices prevailing the following
countries are usually excluded, where treaties are as a `world wide basis-
a. England and Ireland
b. German and France
c. United States of America and Canada
d. Malaysia and Mauritius

8. The Reinsurer is not liable to pay

a. His share of the sum insured paid by the ceding insurer to his insured claimant
b. His share of legal fee
c. His share of assessors fee
d. His share of office expenses of the ceding insurer

9. The premium for an excess of loss treaty is usually expressed as a percentage of

a. The normal claim expected to occur.
b. The gross premium income written by the company for the class of business
c. The retention of the ceding company
d. The gross premium income written by the company for all classes of business
during the year of the treaty

10. The general exclusions under aviation reinsurance are

a. Tonners
b. Inward treaties
c. Binders
d. All of the above

11. One of the following category of insurance is exposed to high level of accumulation
potential that the market of resorts to pooling
a. Public liability
b. Third party property damage
c. Fire excess of loss cover
d. Mail damage to crops

12. I on the better risk a smaller PML retention will be kept

II on the inferior risk a high PML retention will be kept
a. Only statement I correct
b. Only statement II is correct
c. Both the statements are wrong
d. Both the statements are correct

13. Personal accident business carries catastrophe exposure in respect of

a. Group PA policies
b. Passengers in a vehicle
c. Passengers in a aircraft
d. All the above

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14. For small accounts, where the extra administrative burden of a surplus would be too
great the treaty used mainly is
a. Surplus Treaty
b. Quota Share Treaty
c. Excess of Loss Treaty
d. Stop Loss Cover Treaty

15. This is a treaty where the amount reinsured is expressed as being between a minimum
and maximum quota share
a. Surplus treaty
b. Stop loss treaty
c. Variable quota share treaty
d. Stop loss care treaty

16. The reinsurance arrangement which is useful is widely dispersed risks, such as in
agriculture exposed to pest damage, is
a. Quota Share Treaty
b. Surplus Treaty
c. Stop Loss Reinsurance
d. All the above

17. The clause in the reinsurance agreement permits each party to net amounts due
against those payable before making payment is
a. Accounting clause
b. Currency clause
c. Set-off clause
d. Arbitration clause

18. The entire amount of an insurance loss including deductible but not of salvage and
recoveries is known as
a. Ultimate net loss
b. Incurred loss
c. Paid loss
d. Ground up loss

19. No RI commission is payable to the ceding company under this type of business-
a. Fire and Accident Proportional Reinsurance
b. Marine Proportional Reinsurance
c. Excess of Loss Reinsurance
d. All the above

20. This method for reinsurance commission is very easy to account, as the commission
payable is determined by applying the agreed percentage of commission to the
premium ceded loss returns and cancellation
a. Sliding scale of commission

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 b. Overriding commission
c. Flat rate of commission
d. All of the above

21. The Portfolio transfer percentage of 35% to 40% is arrived at by-

a. 60% method
b. 70% method
c. 75% method
d. 50% method

22. Any joint underwriting operation of insurance or reinsurance in which participants

assume a predetermined and fixed interest in all business written is
a. Retrocession
b. Agency reinsurance
c. Pool
d. Portfolio transfer

23. The ratio of actual past losses to their corresponding premium (written or earned) for
the same period is
a. Commutation
b. Ground-up-loss
c. Burning cost
d. Insolvency

24. The clause which provides that in the event of the reinsureds insolvency any part of a
loss covered by reinsurance be paid directly to the original insured by the reinsurer-
a. Commutation clause
b. Intermediary clause
c. Reinsuring clause
d. Cut through clause

25 CESSION is the terminology in reinsurance where

a. Amount of insurance an insurer transfers to reinsurer
b. Amount of insurance an insurer kept as retention
c. The limit of amount of insurance an insurer can write
d. Amount of insurance the reinsurer cedes to another insurer/reinsurer

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I. Discuss the Advantages and disadvantages of PML

Advantages:
Retained premium will be higher than on sum insured
Larger shares of risks can be handled
Easy of placing large risk
Achieving a balanced portfolio

Disadvantages:
Subjective estimates and a loss larger than PML can prove disastrous
Estimates only by experts and may be costly
No standard definition and /or formula
Continuous review not possible

II. Summerise the functions of reinsurance

Increased capacity
Financial stability
Stabilization of claims ratio
Net underwriting results are protected
Spread of risks
Protection of solvency margine
Stabilize profitability
Effective means of communication between insurer and reinsurer
Encourages an insurer to underwrite new and untested risk exposure
Increase in market capacity
Reinsurance provides to the insurer the benefit of their expertise on technical,
rating, underwriting and many aspects of relating to product writing of the direct
business.