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Q 1. Which of these statements is / are TRUE with respect to Intermediary Clause? 1. This clause is
not used if reinsurance is directly placed. 2. It is customary to include this clause identifying the
broker by his name and address 3. Most intermediary clauses shift all credit risk to reinsurers
Only 1
Only 2
All 1, 2 and 3
2 and 3
1 and 2

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:
Since many reinsurance transactions are arranged through an intermediary (a broker) it is
customary to include this clause identifying the broker by his name and address and providing that
the broker is the link for all communications and settlements between the insurer and the reinsurer.

Most intermediary clauses shift all credit risk to reinsurers by providing that:
a) The ceding insurer`s payments to the intermediary be deemed payments to the reinsurer.
b) The reinsurer's payments to the intermediary are not payments to the ceding insurer until
actually received by him.

This clause is compulsory in some countries. This clause is not used if reinsurance is directly
placed.

Q 2. Which of these statements is/are TRUE with respect to Lloyd's? 1. Lloyd’s underwriters write
business solely through registered Lloyd’s Brokers 2. Lloyd’s underwriters make it possible to
insure unusual and high value 3. Lloyd’s motor underwriters are the second largest insurers of
private motor vehicles in the UK
Only 1
1 and 2
Only 3
2 and 3
All 1, 2 and 3

UnAttempted

CORRECT ANSWER:

1 and 2

Explanation:

Lloyd’s motor underwriters are the largest insurers of private motor vehicles in the UK and one of
the most recognised throughout the world. One out of six cars in the UK is insured at Lloyd’s.

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Lloyd’s underwriters make it possible to insure unusual and high value vehicles as well as more
standardised risks.

Lloyd’s underwriters write business solely through registered Lloyd’s Brokers.

Q 3. Stabilsation of Claims Ratio is an important function of reinsurance as a major fluctuation in

claims costs can seriously undermine the financial structure of an insurance insurer. Which of
these is NOT a factor which may cause such fluctuations?
Inadequate spread of risks
New technology risks of unproven nature
Expected weather conditions
Social /economic developments resulting in higher claims
None of the above

UnAttempted

CORRECT ANSWER:

Expected weather conditions

Explanation:
Fluctuations in claims costs can be caused by:
i. Inadequate spread of risks,
ii. Unexpected weather conditions,
iii. Social /economic developments resulting in higher third party / riot / theft / terrorism claims and
iv. New technology risks of unproven nature.

Q 4. Which of these statements is/are TRUE with respect to methods of provision for Outstanding
Losses? 1. The underwriter can decide to make an additional “ad hoc” provision for claims
incurred but not reported (IBNR) 2. Where there is a provision for portfolio entry in the treaty
concerned, the same amount is to be included as estimate for outstanding claims 3. If latest
statistics are not available, then the trend of incurred claims ratios over a period would assist to
estimate the incurred claims for the current year and a provision for outstanding claims can be
made after deducting the paid claims for the year
Only 3
Only 2
All 1, 2 and 3
1 and 3
2 and 3

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

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Explanation:
Some of the methods of provision for Outstanding Losses followed are:
a) Estimated losses as advised by the ceding insurer as at the date of closing. If this is not available
estimates at the latest available date plus large losses intimated subsequently but not paid;
b) Where there is a provision for portfolio entry in the treaty concerned, the same amount is to be
included as estimate for outstanding claims;
c) Where the ceding insurer has provided renewal statistics information on outstanding losses will
be available therein. If latest statistics are not available, then the trend of incurred claims ratios over
a period would assist to estimate the incurred claims for the current year and a provision for
outstanding claims can be made after deducting the paid claims for the year;
d) The underwriter may also decide to make an additional “ad hoc” provision for claims incurred but
not reported (IBNR), say, addition of 10 % of outstanding claims as IBNR.

Q 5. At the end of the accounting year, a provision is required to be made for outstanding losses in
respect of - 1. All Rejections 2. All Acceptances 3. All Cessions
All 1, 2 and 3
Only 2
Only 3
1 and 2
2 and 3

UnAttempted

CORRECT ANSWER:

2 and 3

Explanation:
Provision for Outstanding Losses : At the end of the accounting year, a provision is required to be
made for outstanding losses in respect of all cessions and acceptances.

Q 6. Identify the correct statement with regard to Accounting clause -

This clause in reinsurance agreements permits each party to net amounts due against those payable
before making payment.
This clause provides for rendering of accounts and settlement of balances of accounts between the
parties to reinsurance agreement
This clause is found in all reinsurance agreements and shows the intentions of the parties to resolve
disputes as to the interpretation of the agreement
This clause shifts all credit risk to reinsurers by providing that the ceding insurer`s payments to the
intermediary be deemed payments to the reinsurer
The clause expects immediate rectification and nothing in the clause would operate to increase the
liability of the reinsurers beyond agreed limits.

UnAttempted

CORRECT ANSWER:

This clause provides for rendering of accounts and settlement of balances of accounts between the
parties to reinsurance agreement

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Explanation:
Accounting clause: Procedures for accounting and settlement - This clause provides for rendering
of accounts and settlement of balances of accounts between the parties to reinsurance agreement.
The majority of the proportional treaties operate on quarterly basis for accounting. This can be
monthly, half yearly or even yearly basis to render and settle accounts.

Q 7. When a reinsured wish to protect his whole book of business, it can install single composite cover
which protects at one go the complete business of the reinsured incorporating all classes of
business. Such an arrangement is known as ______ .
Surplus facultative reinsurance
Catastrophe excess of loss
Whole Account Excess of Loss cover
Risk excess of loss
Aggregate excess of loss insurance

UnAttempted

CORRECT ANSWER:

Whole Account Excess of Loss cover

Explanation:
A reinsured may wish to protect his whole book of business. 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 Excess of Loss cover. This method is common in
miscellaneous class of business wherein limits and priorities are set for each different sub-class.

Q 8. Which of these factors will influence Retention ? 1. Corporate Liquidity 2. Portfolio of Risk 3.
Paid-up capital & free reserves of the insurer
Only 1
Only 3
All 1, 2 and 3
1 and 2
2 and 3

UnAttempted

CORRECT ANSWER:

Only 3

Explanation:
Paid-up capital & free reserves (i.e. Total free assets) show the financial strength of the insurer. This
will influence retentions, cover limits & reinsurance costs.
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Q 9. Identify the the importance of 'Geographical location of operations' in reinsurance programme

design.
To judge the relation between largest risk & cat exposures accepted by insurer
Ensuring acceptability of programme to reinsurers
Analysing exposure to various perils
Decision making on retentions & type of reinsurance arrangements
This will influence retentions, cover limits & reinsurance costs.

UnAttempted

CORRECT ANSWER:

Analysing exposure to various perils

Explanation:

Relevance of factor - 'Geographical location of operations' - Analysing exposure to various perils.

Q 10. On what basis is the Profit Commission statement prepared when a treaty covers more than one
currency or a class of business? 1. Aggregate Basis 2. Accounting year Basis 3. Underwriting year
basis
Only 1
Only 2
1 and 2
2 and 3
All 1, 2 and 3

UnAttempted

CORRECT ANSWER:

Only 1

Explanation:

When a treaty includes provision for a profit commission, the ceding insurer must prepare a
statement to indicate whether the treaty is showing a profit or a loss. It is normal procedure, where
a treaty covers more than one currency and/or class of business, to combine the aggregate results
of each section under the treaty in order to determine the overall treaty profit or loss for the year.

Q 11. The fundamental approach in a __________ is an ultimate limit of liability to the insurer or
reinsurer.
Contingent Capital
Multi –Trigger Cover
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Finance reinsurance
Multi- Line / Multi- Year Package
Finite Risk programme

UnAttempted

CORRECT ANSWER:

Finite Risk programme

Explanation:
Finite Risk - This tool was developed by the founders of Centre Re, Bermudas, based on a research
study. A major conclusion of their research was that `insurance industry is not adequately
compensated for taking an unlimited risk`.

The fundamental approach in a Finite Risk programme is an ultimate limit of liability to the insurer
or reinsurer known as `provider`. Within this limitation there are no additional constraints on
exposure that can be covered or the period of cover, which could be multi-year.

Q 12. Which of these are alternative types of risk carriers? 1. Pools 2. Self insurance 3. Risk Retention
Groups
Only 1
Only 3
All 1, 2 and 3
1 and 3
1 and 2

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:
Alternative transfer includes alternative types of risk carriers such as –
a) Self insurance
b) Risk Retention Groups
c) Pools
d) Captives

Q 13. How is the assessment of a company’s net account accumulations done? 1. Claim wise 2. Year wise
3. Zone wise
Only 2
Only 3
All 1, 2 and 3
1 and 2
1 and 3
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UnAttempted

CORRECT ANSWER:

Only 3

Explanation:

The assessment of a company's commitments has to be done zone wise and for this purpose
accumulation control sheets are maintained.

Q 14. Which of these statements is/are TRUE with respect to Fire proportional reinsurance business? 1.
The accounts for this type of business are normally rendered on an “Accounts Year” basis 2. The
premiums are usually shown at original gross rates and the reinsurance commission rate is then
applied 3. The reinsurance commission will cover only the ceding insurer’s expenses
All 1, 2 and 3
Only 1
Only 2
1 and 2
1 and 3

UnAttempted

CORRECT ANSWER:

1 and 2

Explanation:
Fire and Accident Proportional Reinsurance: The accounts for this type of business are normally
rendered on an “Accounts Year” basis. The premiums are usually shown at original gross rates and
the reinsurance commission rate is then applied.

In Marine Proportional Reinsurance - The accounts for this type of business are normally rendered
on an “Underwriting Year” basis. The premiums are usually shown net of acquisition costs, agency
commission, brokerage and any discount allowed to the insurer. Hence, the reinsurance
commission will cover only the ceding insurer’s expenses.

Q 15. Which of these statements is / are TRUE with respect to Statistics in Reinsurance ? 1. An accurate
and efficient information system helps in increasing credibility of the primary insurer and helps
in renewal of treaties 2. The basic statistics relating to a treaty are collated from accounts
statements as sent and received 3. Maintenance of accurate statistics relating to acceptances and
their speedy and timely availability is vital for the successful conduct of reinsurance business
Only 2
Only 3
1 and 2
All 1, 2 and 3
2 and 3

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UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:

Importance of Statistics in Reinsurance - An accurate and efficient information system helps in

increasing credibility of the primary insurer and helps in renewal of treaties. The primary insurer
must make available his books of account for inspection by the reinsurer.

Maintenance of accurate statistics relating to acceptances and their speedy and timely availability is
vital for the successful conduct of reinsurance business. These are necessary for periodically
monitoring the performance of each reinsurance arrangement and to take remedial action where
necessary.

The basic statistics relating to a treaty are collated from accounts statements as sent and received.
Information can be processed from these basic statistics for any type of review requirement
considered as important including an assessment of cash flows.

Q 16. This intention of ________ clause is to give the reinsurer the right to inspect any book or record of
the ceding insurer which are relevant to the business reinsured.
Alterations
Operative clause
Access to records
Errors and omission
Insolvency of other reinsurers

UnAttempted

CORRECT ANSWER:

Access to records

Explanation:

Access to records: Inspection by reinsurer - This intention of this clause is to give the reinsurer the
right to inspect any book or record of the ceding insurer which are relevant to the business
reinsured. The inspection, which is at the reinsurer’s expense, must be carried out during normal
office hours and the right remains available to the reinsurer so long as any liability under the
reinsurance remains unsettled.

Q 17. The subject matter of the reinsurance contract is in effect the ________ .
Validity of the insurance in the original insurance contract
Premium amount in the original insurance contract
Purpose of insurance in the original insurance contract

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Terms and conditions in the original insurance contract

Reinsured’s liability in the original insurance contract

UnAttempted

CORRECT ANSWER:

Reinsured’s liability in the original insurance contract

Explanation:

The subject matter of the reinsurance contract is in effect the reinsured’s liability in the original
insurance and since that liability depends on the existence of the subject matter of the insurance it
follows that the validity of the reinsurance is equally dependent thereon.

Q 18. In Group underwriting - 1, The insurers keep a retention representing the combined capacity of
the group 2. Is suitable where considerable facultative reinsurance is required 3. Operate a group
reinsurance programme
Only 1
Only 2
1 and 2
1 and 3
All 1, 2 and 3

UnAttempted

CORRECT ANSWER:

1 and 3

Explanation:

When insurers are individually small, their retention levels are very low. Where the insurers have a
common management or common ownership they may resort to group underwriting.

This means that they keep a retention representing the combined capacity of the group and operate
a group reinsurance programme. This net retained business is then redistributed among the group
members.

Q 19. There are various methods for calculating Reinsurance Commission. Under which method is the
commission payable determined by applying the agreed percentage of commission to the
premiums ceded less returns and cancellation?
Sliding Scale Commission
Profit Commission
Brokerage
Overriding Commission
Flat Rate of Commission
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UnAttempted

CORRECT ANSWER:

Flat Rate of Commission

Explanation:

Flat Rate of Commission - This is very easy to account as the commission payable is determined by
applying the agreed percentage of commission to the premiums ceded less returns and
cancellation. There may be different rates of fixed commission for different types of business within
a treaty.

Q 20. Which of these statements is/are TRUE with regard to 'Parties to the reinsurance contract'? 1.
The insured under that direct policy has no interest in or right over the reinsurer 2. In
reinsurance contract, the reinsurer’s liability is only to the insurer 3. Reinsurance can exist
without there being a direct insurance
All 1, 2 and 3
1 and 2
2 and 3
Only 2
Only 1

UnAttempted

CORRECT ANSWER:

1 and 2

Explanation:

Parties to the reinsurance contract are Reinsured or ceding insurer and Reinsurer.

The reinsurance contract CANNOT exist without there being a direct insurance, for the first party is
the reinsured who has already issued a direct policy. Yet the insured under that direct policy has no
interest in or right over the reinsurer.

The reinsurer is certainly liable in respect of his share of any claim made by the insured, but his
liability is to the insurer and to the insurer only, for the insurer alone is the other party to the
contract.

Q 21. In Finite Risk programme, the premiums credited to ‘Experience Account’ are ________ . 1.
Repaid to the policyholder at the end of the multi-year policy period 2. Used for paying
intermediary commission 3. Used for paying the claims
Only 1
Only 3
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2 and 3
1 and 2
All 1, 2 and 3

UnAttempted

CORRECT ANSWER:

Only 1

Explanation:

Premiums credited to `Experience Account` and not used to pay claims are repaid to the
policyholder at the end of the multi-year policy period.

Q 22. Which of the following clause(s) can also be added under the 'Commencement and termination'
clause? 1. Notice of Cancellation at Anniversary Date 2. Termination: Exiting an agreement 3.
Sudden death clause
1 and 3
2 and 3
Only 2
All 1, 2 and 3
Only 1

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:

All the three can be added under the 'Commencement and termination' clause. For eg - There can be
a provision for termination without notice in the event of certain other circumstances stipulated in
the contract. This is known as “Sudden Death Clause”.

Also some reinsurers make it a practice to make their acceptances subject to “notice of cancellation
at anniversary date” (NCAD).

Q 23. 'In the event of any portion of the limit of cover being reduced by settlement of a loss the amount
of limit of cover so reduced will be automatically reinstated from the time of commencement of
the loss occurrence until the expiry of the agreement'. This is as per the _________ .
PML excess clause
Reinstatement clause
Downgrade clause

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Cut through endorsement clause

Extension of reinsurance cover clause

UnAttempted

CORRECT ANSWER:

Reinstatement clause

Explanation:
Reinstatement: Restoring diminution in cover :

In the event of any portion of the limit of cover being reduced by settlement of a loss the amount of
limit of cover so reduced will be automatically reinstated from the time of commencement of the
loss occurrence until the expiry of the agreement.
Premium would be charged as agreed. It is usual to note one free reinstatement followed by prorata
additional premium for subsequent reinstatements, provided more than one reinstatement is
agreed.

Q 24. Reliable Insurance Co. has received a proposal for Rs. 50,00,000. It has fixed its retention limit at
Rs. 20,00,000. Calculate the 'Surplus Reinsurance' requirement.
Rs. 70,00,000
Rs. 50,00,000
Rs. 20,00,000
Rs. 30,00,000
Rs. 25,00,000

UnAttempted

CORRECT ANSWER:

Rs. 30,00,000

Explanation:

In surplus reinsurance, the original insurer decides what part of the original insurance he wishes to
retain for his own account and reinsures (cedes) the balance with a reinsurer.

In the above question, out of Rs 50 lakhs, the insurer will retain Rs 20 lakhs. So the balance Rs 30
lakhs will be the surplus reinsurance requirement.

Q 25. ________ reinsurance is intended to limit losses that arise on the reinsured’s day-to- day
operations.
Working Excess of Loss
Risk Excess of Loss
Surplus facultative & Facultative Excess of Loss
Catastrophe Excess of Loss
Stop Loss or
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UnAttempted

CORRECT ANSWER:

Working Excess of Loss

Explanation:
Working (Risk) Excess of Loss (XL) - This reinsurance is intended to limit losses that arise on the
reinsured’s day-to- day operations. It caters to the reinsured’s need for protection against number of
losses that arise out of a single accident, occurrence or event.

Q 26. Which of these statements is/are TRUE? 1. Where the insurers have a common management or
common ownership they may resort to group underwriting. 2. When insurers are individually
small, their retention levels are very low. 3. The insurers keep a retention representing the
combined capacity of the group and operate a group reinsurance programme in Group
Underwriting
Only 2
Only 3
1 and 2
All 1, 2 and 3
1 and 3

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:

All the statements are true.

Group Underwriting : When insurers are individually small, their retention levels are very low. Where
the insurers have a common management or common ownership they may resort to group
underwriting. This means that they keep a retention representing the combined capacity of the
group and operate a group reinsurance programme.

Q 27. Identify the factor in reinsurance programme design which is relevant for relation between
largest risk & cat exposures accepted by insurer on a gross & net basis to judge financial effects
on insurer’s capital base.
Size & structure of the portfolio
Frequency & size of losses
Risk based capital
Geographical location of operations
Investment & liquidity policy

UnAttempted

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CORRECT ANSWER:

Risk based capital

Explanation:
Risk Based Capital is the amount of capital needed to absorb the various risks of operating an
insurance business. For example, a higher risk business requires more capital than one with lower
risks.

The factor in reinsurance programme design which is relevant for relation between largest risk &
catastrophe exposures accepted by insurer on a gross & net basis to judge financial effects on
insurer’s capital base is Risk Based Capital.

Q 28. What is the 'Commencement and Termination' clause?

This clause brings out clearly the obligatory nature of reinsuring, in that the insurer binds himself to
cede and the reinsurer binds himself to accept
This clause deals with the commencement of reinsurance and the manner and the circumstances in
which it can be terminated.
This clause gives the reinsurer the right to inspect any book or record of the ceding insurer which are
relevant to the business reinsured
This clause in reinsurance agreements permits each party to net amounts due against those payable
before making payment.
The salient features of this clause are the possibility of making amendments, consent of both the
parties, addendum forming integral part of and binding on the parties

UnAttempted

CORRECT ANSWER:

This clause deals with the commencement of reinsurance and the manner and the circumstances in
which it can be terminated.

Explanation:
Commencement and termination : This clause deals with the commencement of reinsurance and the
manner and the circumstances in which it can be terminated. The agreement will incept on the date
as agreed between the parties say 1st January and may terminate at 31st December if it is an annual
contract.

Q 29. The credit rating given to an individual insurer is _______ . 1. not dependent on its country's
rating 2. is superior to its country's rating 3. is subordinate to its country's rating
Only 1
Only 2
Only 3

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1 and 2
1, 2 and 3

UnAttempted

CORRECT ANSWER:

Only 3

Explanation:

It is an established convention that the individual insurer rating however good is subordinate to its
country`s rating. Hence a well rated insurer in a country would be poorly rated if the country`s
sovereign rating is poor.

Q 30. RBI has granted permission to ______ to act as an authorised dealer to arrange remittances of
foreign exchange in respect of their reinsurance arrangements.
SEBI
IRDAI
LIC Re
GIC Re
National Re

UnAttempted

CORRECT ANSWER:

GIC Re

Explanation:

Reinsurance arrangements of the GIC Re are reviewed annually and approved by Government of
India. Permission is granted by Reserve Bank of India to GIC Re as an authorised dealer to arrange
remittances of foreign exchange in respect of their reinsurance arrangements.

Q 31. Investment in the stock market increases the - 1. Liquidity 2. Cost of administration 3. Exposure
to capital loss
Only 1
Only 2
1 and 2
2 and 3
All 1, 2 and 3

UnAttempted

CORRECT ANSWER:

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2 and 3

Explanation:
Investment in the stock market increases the:
- Cost of administration and
- Exposure to capital loss
But at the same time investors can earn higher return depending on their risk taking ability.

Q 32. Which of these key performance indicators has to be disclosed by the insurers as per IRDAI
directives? 1. Claim ratio 2. Premium collection 3. Lapsation rate
Both 1 and 2
Both 1 and 3
Both 2 and 3
All 1, 2 and 3
Only 1

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:

The Institute of Chartered Accountants of India has planned to have Indian accounting standards
converge fully with the International Financial Reporting Standards.

According to this, IRDA requires insurers to disclose key performance indicators, including
lapsation rate, claim ratio and premium collection.

Q 33. _________ helps in keeping a watch on receipt of accounts and follow-up of delayed accounts.
Accounts flow chart
Cash loss register
Reserves journal
Personal ledgers
Treaty journal

UnAttempted

CORRECT ANSWER:

Accounts flow chart

Explanation:
Accounts flow chart helps in keeping a watch on receipt of accounts and follow-up of delayed
accounts.
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As and when an account is received, the date of receipt is entered in the appropriate column. The
chart needs to be looked into regularly for maintaining an effective follow-up for accounts.

Q 34. How can the term 'Occurrence' be best described?

The provision in a contract of insurance or reinsurance that coverage applies only to losses which
occur and claims for which are made during the period a policy is in force
Losses (reported or not reported) which have occurred but not have been paid
This is another way to refer to the reinsured or ceding insurer
In a non-insurance sense, an incident, event or happening. In insurance, the term may be defined as
continual, gradual, or repeated exposure to an adverse condition which is neither intended nor expected
to result in injury or damage, as contrasted with an accident which is a sudden happening.
A system utilized in excess of loss insurance whereby the reinsurer is responsible for all the claims
occurring during the currency of the treaty without reference to the period of the original policies

UnAttempted

CORRECT ANSWER:

In a non-insurance sense, an incident, event or happening. In insurance, the term may be defined as
continual, gradual, or repeated exposure to an adverse condition which is neither intended nor expected
to result in injury or damage, as contrasted with an accident which is a sudden happening.

Explanation:
Occurrence : In a non-insurance sense, an incident, event or happening.

In insurance, the term may be defined as continual, gradual, or repeated exposure to an adverse
condition which is neither intended nor expected to result in injury or damage, as contrasted with
an accident which is a sudden happening.

Q 35. The principal object of the F.A.I.R Pool is to ______ .

Assist the respective governments in setting up and operating catastrophe insurance programmes
Promote regional pools supporting the countries in their respective regions
Actively promote free trade in services
Provide political risk insurance to the private sector
Accept reinsurance and retrocession business from the African and Asian markets

UnAttempted

CORRECT ANSWER:

Accept reinsurance and retrocession business from the African and Asian markets

Explanation:

The Federation of Afro-Asian Insurers & Reinsurers (F.A.I.R.) set up the F.A.I.R Non-Life
Reinsurance Pool with effect from 1.1.1974. The principal object of the Pool is to accept reinsurance

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and retrocession business from the African and Asian markets.

Q 36. Under surplus method of reinsurance, the ________ decides the limit of liability which he wishes
to retain on any one risk or class of risks. 1. Ceding insurer 2. Reinsurer 3. Intermediary
Only 1
Only 2
1 and 2
All 1, 2 and 3
2 and 3

UnAttempted

CORRECT ANSWER:

Only 1

Explanation:
Under surplus method the ceding insurer decides the limit of liability which he wishes to retain on
any one risk or class of risks. This limit is known as the ceding insurer’s retention.

This will be the maximum limit which ceding insurer will retain. The surplus over and above the retention will
be allotted to one or more reinsurers.

Q 37. __________ reinsurance protects a reinsured against an accumulation or aggregation of losses

arising from an identified event such as Earthquake, Flood, Cyclone, Riots, etc., which may affect
a large number of risks.
Facultative Excess of Loss
Risk Excess of Loss
Stop Loss or Excess of Loss Ratio
Aggregate Excess of Loss
Catastrophe Excess of Loss

UnAttempted

CORRECT ANSWER:

Catastrophe Excess of Loss

Explanation:
Catastrophe Excess of Loss ( Cat XL) reinsurance : This reinsurance protects a reinsured against
an accumulation or aggregation of losses arising from an identified event such as Earthquake,
Flood, Cyclone, Riots, etc., which may affect a large number of risks. Such accumulations or
aggregation may far exceed the reinsured’s retention on an “any one risk” basis.

Q 38.
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The reinsurer’s intention behind the calculation of a suitable rate for determining premium for
XL covers is to cover: 1. The normal claims expected to occur 2. The reinsurer’s management
expenses 3. Reserve for worsening experience
Only 1
All 1, 2 and 3
Only 3
1 and 3
2 and 3

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:
The reinsurer’s intention behind the calculation of a suitable rate is - namely to cover:
a) The normal claims expected to occur,
b) Reserve for worsening experience- including inflation and I.B.N.R. claims,
c) The reinsurer’s management expenses,
d) Surplus that may be termed a profit

Q 39. An insurer, ABC Insurance Co. has a retention limit of Rs. 20 lakhs and it cedes the balance risk
to reinsurer XYZ Re Co. with whom it has a proportional treaty. ABC has accepted a risk of Rs.
40 lakhs and for this it received a premium of Rs. 10,000. Calculate how much premium will be
paid to the reinsurer XYZ by the insurance company?
NIL
Rs. 10,000
Rs. 4,000
Rs. 2,000
Rs. 5,000

UnAttempted

CORRECT ANSWER:

Rs. 5,000

Explanation:

Out of Rs 40 lakhs, the insurer can retain Rs 20 lakhs and the balance Rs 20 lakhs has to be ceded
to the reinsurer. This means the insurer has ceded 50% of the risk.

The premium has to be shared in the same proportion ie. 50% of Rs. 10,000 = Rs.5000.

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Q 40. With respect to 'Group Underwriting' , which of these statement is / are true? 1. Where the
insurers have a common management or common ownership they may resort to group
underwriting 2. They keep a retention representing the combined capacity of the group and
operate a group reinsurance programme 3. The net retained business is then redistributed among
the group members
All 1, 2 and 3
2 and 3
1 and 3
Only 2
Only 1

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:
Group Underwriting and Retention :
When insurers are individually small their retention levels are very low. Where the insurers have a
common management or common ownership they may resort to group underwriting. This means
that they keep a retention representing the combined capacity of all the group companies and
operate a group reinsurance programme. This net retained business is then redistributed among the
group members.

Q 41. In the ________ clause, the parties to reinsurance contract can use ‘Addendum’.
Extra Addition
Operative clause
Commencement and termination
Alterations
Errors and omissions

UnAttempted

CORRECT ANSWER:

Alterations

Explanation:

The salient features of 'Alteration' clause is the possibility of making amendments, consent of both
the parties, addendum forming integral part of and binding on the parties.

Q 42. An insurance compnay has a retention limit of Rs 20,00,000 and has a 10 lines treaty placed with
two reinsurers P and Q for 10% and 90% respectively. The insurance company has received a
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proposal for a sum insured of Rs 40,00,000. Calculate, how much of this will go Reinsurer Q ?
Rs. 10,00,000
Rs. 9,00,000
Rs. 20,00,000
Rs. 18,00,000
Rs. 12,00,000

UnAttempted

CORRECT ANSWER:

Rs. 18,00,000

Explanation:

The insurance company has received a proposal for Rs 40 lakhs out of which it will retain Rs 20
lakhs. The balance Rs 20 lakhs will be placed with reinsurers P and Q in the proportion of 10 : 90.

So reinsurer Q will get 90% of Rs 20 lakhs = Rs 18 lakhs.

Q 43. _______ is covered under the Operative clause.

Commencement and termination
Sudden death clause
Method of cession
Insolvency of other reinsurers
Notice of Cancellation at Anniversary Date

UnAttempted

CORRECT ANSWER:

Method of cession

Explanation:
Operative clause is commonly found in all agreements and describes without any ambiguity the
business coming within the scope of a reinsurance contract. The essential features of this clause
are:-
a) It brings out clearly the obligatory nature of reinsuring, in that the insurer binds himself to cede
and the reinsurer binds himself to accept.
b) The method of cession is stated
c) The territorial scope is stated etc.

Q 44. ______ is 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 reinsurer’s exposure.
GDP
I.B.N.R.

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MINDIP
GNPI
Retention

UnAttempted

CORRECT ANSWER:

GNPI

Explanation:

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 reinsurer’s exposure (facultative reinsurances and underlying
reinsurances). This is termed as Gross Net Premium Income – GNPI.

Q 45. NAIC, an insurance regulatory body in USA, has developed its own rating system known as
_________ .
ICRA
ISSR
IRIS
IISR
SRII

UnAttempted

CORRECT ANSWER:

IRIS

Explanation:

The National Association of Insurance Commissioners in USA (NAIC), an insurance regulatory body,
has developed its own rating system known as Insurance Regulatory Information System (IRIS) to
provide for an integrated approach to monitoring and analyzing the financial health of insurers and
reinsurers.

Q 46. Which of these is NOT a Credit Rating agency?

CARE
Standard and Poor
Moody`s
NAIC
CRISIL

UnAttempted

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CORRECT ANSWER:

NAIC

Explanation:

National Association of Insurance Commissioners in USA (NAIC) is an insurance regulatory body

and not a credit rating agency.

Q 47. A formal treaty wording is usually drawn up by the parties in treaty reinsurance to describe : 1.
Mode of operation 2. Monetary limits 3. Classes of business covered
1 and 2
1, 2 and 3
Only 2
Only 1
1 and 3

UnAttempted

CORRECT ANSWER:

1, 2 and 3

Explanation:
A formal treaty wording is usually drawn up by the parties to describe:
a) the monetary limits and mode of operation;
b) the classes of business covered, the territorial scope, the risks excluded;
c) the calculation and payment of claims, the calculation and payment of premiums and the period
of agreement.

Q 48. In Proportional Reinsurance, the reinsurer shares liabilities of the insurer along with _____ in the
same proportion as per agreement in the treaty. 1. sum insured 2. premiums 3. claims
Only 2
Only 3
1 and 3
1 and 2
All 1, 2 and 3

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:

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In proportional reinsurance, the reinsurer shares liabilities of the insurer along with sum insured,
premiums and claims in the same proportion as per agreement in the treaty.

Q 49. In liability excess of loss reinsurances, ________ claims are aggregated into one occurrence for all
employees of one insured. 1. Fidelity losses 2. Occupational disease 3. Products liability losses
Only 1
Only 2
Only 3
1 and 2
1, 2 and 3

UnAttempted

CORRECT ANSWER:

Only 2

Explanation:
In liability excess of loss reinsurances, the concept of what constitutes one loss is more
complicated and some of the common methods followed in this regard are as under:
a) Occupational disease claims are aggregated into one occurrence for all employees of one
insured contracting the same disease during one original policy period
b) Products liability losses are dealt with on a ‘batch’ system, that is, all claims arising from the
manufacture or distribution of one faulty batch or lot of a product are regarded as one occurrence.
c) Fidelity losses, which are covered on a ‘losses discovered basis’, can be limited to the acts of
one individual or more than one if acting in collusion. Independent acts of embezzlement would be
regarded as separate losses for the purpose of reinsurance.

Q 50. Which of these is similar to direct insurance?

Proportional Reinsurance
Non-Proportional Reinsurance
Treaty Reinsurance
Facultative Reinsurance
Facultative and Treaty Reinsurance

UnAttempted

CORRECT ANSWER:

Facultative and Treaty Reinsurance

Explanation:

Treaty or facultative reinsurance business : Facultative reinsurance business will necessarily

involve more administrative work because each offer will have to be scrutinised individually and
either accepted or declined.

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Amount of premium involved is comparatively small and the underwriter will need to have an
intimate knowledge of tariffs and other market conditions from which the business emanates and in
this respect it is similar to direct insurance.

Around 80% of the total direct insurances is found reinsured either facultatively or through a treaty.

Q 51. Find out the proportional class from following – 1. Quota share 2. Surplus 3. Facultative
Obligatory Treaties
1, 2 and 3
Only 1
Only 2
1 and 2
1 and 3

UnAttempted

CORRECT ANSWER:

1, 2 and 3

Explanation:

The insurer or reinsurer will have to make a broad estimate of the portfolio mix i.e. how much of the
business written will be proportional and what percentage will be non-proportional.

In proportional class, there are quota share, surplus, facultative obligatory treaties etc.

Q 52. With resgards to Placement through intermediaries, the slip is initially presented by the broker to
_______ .
Actuaries
Professional reinsurers
Group underwriters
Quoting markets
Cede insurer

UnAttempted

CORRECT ANSWER:

Group underwriters

Explanation:

In Placement through intermediaries, the slip is initially presented by the broker to underwriters
who are respected in the market for their acumen to quote.

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Q 53. _______ is a regional reinsurance pool. 1. WTO 2. Asian Reinsurance Corporation 3. African
Reinsurance Corporation
Only 1
Only 2
1 and 2
2 and 3
All 1, 2 and 3

UnAttempted

CORRECT ANSWER:

2 and 3

Explanation:

A significant development in the field of international reinsurance and regional co-operation is the
formation of regional reinsurance corporations in the 1970s.

Example -

a) Asian Reinsurance Corporation

b) African Reinsurance Corporation

The objective of such corporations is to endeavour to reduce the drain on foreign exchange
resources resulting from the reinsurances of local companies being ceded to foreign companies
and to promote local expertise.

Q 54. In the UK, _______ is a good example of an alternative carrier. 1. Pool Re 2. GIC Re 3. Market
Terrorism Pool
Only 1
Only 3
1 and 3
2 and 3
All 1, 2 and 3

UnAttempted

CORRECT ANSWER:

Only 1

Explanation:

In the UK, Pool Re is a good example of an alternative carrier for risk of terrorism, and covers all
risks, including nuclear and biological contamination, aircraft impact and flooding, if caused by
terrorist attacks.

(In India, the Market Terrorism Pool is a good example of alternative carrier)

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Q 55. The main objective of WTO is _______ .

To actively promote free trade in services
To assist the governments in setting up catastrophe insurance programmes
To provide political risk insurance to the private sector
To accept reinsurance and retrocession business from the Asian and African markets
To promote regional pools supporting the countries in their respective regions

UnAttempted

CORRECT ANSWER:

To actively promote free trade in services

Explanation:

The World Trade Organisation (WTO) has been actively promoting free trade in services. Free trade
and globalising trade in services is an important objective of this world body with a view to
promoting expanding market opportunities in the long term.

Q 56. As per the Insurance Act, 1938, every insurer is required to prepare which of these documents at
the expiration of each calendar year? 1. A Profit and loss account 2. A Revenue account 3. A
Balance Sheet
Only 1
Only 2
Only 1 and 3
Only 1 and 2
All 1, 2 and 3

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:

As per the Insurance Act, 1938 every insurer is required to prepare at the expiration of each
calendar year, in the prescribed forms, a balance sheet, a profit and loss account and revenue
account for each class of insurance business.

Q 57. Which type of retention is managed through reasonable estimation of financial consequences and
by allowing a catastrophe reserve for funds to accumulate and be available over the long term?
Per Return Retention
Per Risk Retention
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Per Event Retention

Per Reinsurance Retention
Per Cedant Retention

UnAttempted

CORRECT ANSWER:

Per Event Retention

Explanation:

The Per Event retention is managed through reasonable estimation of financial consequences and
by allowing a catastrophe reserve for funds to accumulate and be available over the long term.

Examples of event-based exposures can be:

- Possibility of accumulation within one branch.
- Possibility of accumulation between branches.

Q 58. Which of these factor(s) affect underlying statistical trends ? 1. Class of business 2. Legislation of
country of origin 3. Type of reinsurance contract
Only 3
All 1, 2 and 3
1 and 2
1 and 3
Only 1

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:
As with other insurance statistics, there are various factors which affect underlying statistical
trends, which include:
- class of business;
- type of reinsurance contract;
- legislation of country of origin;
- types of claim;
- currency;
- inflation

Q 59. If coverage is on ‘each loss each risk’ basis under the 'Business Covered: Insuring clause non-
proportional', there may be - 1. A minimum limit per loss occurrence 2. A maximum limit per loss
occurrence 3. An annual aggregate linked to the reinstatement provision
Only 1
Only 2
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All 1, 2 and 3
1 and 3
2 and 3

UnAttempted

CORRECT ANSWER:

Only 2

Explanation:

If coverage is on ‘each loss each risk’ basis, there may be a maximum limit per loss occurrence.

If coverage is on a ‘loss occurrence’ basis, there may be an annual aggregate linked to the
reinstatement provision.

Q 60. _________ is/are international credit rating agencies. 1. CRISIL 2. Standard and Poor 3. Moody`s
Only 1
1 and 2
2 and 3
All 1, 2 and 3
Only 2

UnAttempted

CORRECT ANSWER:

2 and 3

Explanation:
The major and popular names of credit rating agencies worldwide are:
a) Standard and Poor
b) A.M. Best
c) Moody`s
d) Duff & Phelps

CRISIL (Credit Rating Information Services of India Limited) is a popular Indian credit rating agency.

Q 61. Mega Insurance Co. has fixed its retention limit at Rs. 40,00,000. It has received a proposal for
Rs. 30,00,000. Calculate the 'Surplus Reinsurance' requirement.
Rs. 10,00,000
Rs. 40,00,000
Rs. 70,00,000
Rs. 20,00,000
NIL

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UnAttempted

CORRECT ANSWER:

NIL

Explanation:

In surplus reinsurance, the original insurer i.e. the ceding insurer decides what part of the original
insurance he wishes to retain for his own account and reinsures (cedes) the balance with a
reinsurer.

In the above case, the proposal (Rs. 30 lakhs) is for a lesser amount then the retention limit of the
insurer (Rs 40 lakhs). So it will reatin the full and do full insurance. There is no surplus.

Q 62. "A reinsurance contract under which the ceding insurer has the option to cede and the reinsurer
has the option to accept a specific risk of a specific insured” - This is the defination for which type
of reinsurance? 1. Treaty reinsurance 2. Portfolio reinsurance 3. Facultative reinsurance
Only 1
Only 2
Only 3
1 and 2
2 and 3

UnAttempted

CORRECT ANSWER:

Only 3

Explanation:
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 accept a specific risk of a specific insured”.
Facultative reinsurance may be transacted on:
a) Proportional or
b) Non-proportional basis

Q 63. An insurance company has insured a risk of Rs 1,00,00,000 (Rs 1 crore). It has fixed a retention
limit of Rs 10,00,000 (Rs 10 lakhs). The percentage of Retention and Surplus are 10% and 90% of
sum insured. The PML is estimated at 25% of the sum insured. On the basis of PML what will be
the surplus (percentage of PML) for the insurer?
50%
15%
75%
60%
NIL

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UnAttempted

CORRECT ANSWER:

60%

Explanation:

The Probable Maximum Loss (PML) is 25% of Sum Insured ie. 25% of Rs 1 crore = Rs 25 lakhs

The Retention is 10% of sum insured ie. 10% of Rs 1 crore = Rs 10 lakhs

The PML is Rs 25 lakhs out of which Rs 10 lakhs will be retained.

So the reinsurance surplus on the basis of PML will be Rs 15 lakhs ( 25 lakhs - 10 lakhs)

PML is 25 lakhs and the Surplus is Rs 15 lakhs.

Calculating the percentage of Surplus to PML = 15 / 25 X 100 = 60%

So the Surplus is 60% of the PML.

Q 64. Which is/are the relevant factor/s which is/are relevant with regard to relation between largest
risk and catastrophe exposures accepted by insurer on a gross and net basis to judge financial
effects and insurer’s capital base in reinsurance programme design? 1. Size and structure of
portfolio 2. Risk based capital 2. Paid up capital
Only 2
Only 1
2 and 3
1 and 2
All 1, 2 and 3

UnAttempted

CORRECT ANSWER:

Only 2

Explanation:
Risk Based Capital is the amount of capital needed to absorb the various risks of operating an
insurance business. For example, a higher risk business requires more capital than one with lower
risks.

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The factor in reinsurance programme design which is relevant for relation between largest risk &
catastrophe exposures accepted by insurer on a gross & net basis to judge financial effects on
insurer’s capital base is Risk Based Capital.

Q 65. What do Treaty Wordings describe? 1. Scope of the cover 2. Portfolio movements 3. Accounting
Only 1
Only 2
All 1, 2 and 3
1 and 3
1 and 2

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:

Treaty wordings 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.

The agreement describes not only the scope of the cover granted by the reinsurers but also the
various procedures such as:
- Accounting
- Portfolio movements
- Bordereaux etc., covering the administrative aspects of the treaty

Q 66. Which of these factor(s) have a direct effect on the results of reinsurance? 1. Deficient
underwriting methods 2. Hasty development of business and inefficient technical attention 3.
Excessive generosity in the settlement of claims
All 1, 2 and 3
Only 1
Only 3
1 and 3
1 and 2

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:
Improper business administration (negligence, incapacity) on the part of the insurer can
considerably increase the risk run by the reinsurer. Following factors have a direct effect on the
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results of reinsurance:
i. Deficient underwriting methods,
ii. Excessive generosity in the settlement of claims,
iii. Hasty development of business and inefficient technical attention

Q 67. Service providers provide database access to their customers as an extension of the intranet to
download and use certificates of insurance. This is known as ______ .
Loop Internet
Extranet
Digital Nervous System
WiFi
Intranet

UnAttempted

CORRECT ANSWER:

Extranet

Explanation:
An organization can internally connect all its executives and offices through a private internet
arrangement which is called `intranet`. While it will be possible to access the public internet through
an intranet freely it is not possible to access an intranet facility except through password restricted
access.

This restricted access has increased commercial opportunities to service providers who provide
database access to their customers as an extension of the intranet to download and use certificates
of insurance or to ascertain their own account balance status, etc. This access is called `Extranet`.

Q 68. Which is the most appropriate method of burglary reinsurance business? 1. Surplus treaty 2.
Facultative reinsurance 3. Excess of loss cover
Only 1
Only 3
1 and 2
2 and 3
All 1, 2 and 3

UnAttempted

CORRECT ANSWER:

Only 1

Explanation:

Burglary is part of the miscellaneous accident business.

The normal method of reinsurance in the Miscellaneous Department is surplus basis. While burglary
is capable of reinsurance on excess of loss basis, the other classes will require substantial
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premium on excess of loss basis.

Q 69. Which of these statements is /are true with respect to Credit Ratings? 1. Credit rating is used by
insurers and reinsurers to inform the markets of their financial strengths 2. Credit Ratings
addresses the suitability of a particular policy or contract for a specific purpose or purchaser 3.
Credit Ratings opinion is specific to any particular policy or contract
Only 1
Only 3
All 1, 2 and 3
1 and 2
1 and 3

UnAttempted

CORRECT ANSWER:

Only 1

Explanation:

A credit rating is a current opinion of the financial strengths and security characteristics of an
insurer or reinsurer with respect to his ability to pay under his insurance policies and contracts in
accordance with their terms.

This credit rating is used by insurers and reinsurers to inform the markets of their financial
strengths.

This opinion is not specific to any particular policy or contract, nor does it address the suitability of
a particular policy or contract for a specific purpose or purchaser.

Q 70. The defects of ________ system are the long run-off and the difficulty of assigning a claim to the
proper excess of loss contract year. 1. Loss occurring basis 2. Risk attaching basis 3. Premium
paid basis
Only 1
Only 2
1 and 3
2 and 3
All 1, 2 and 3

UnAttempted

CORRECT ANSWER:

Only 2

Explanation:

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The “risk attaching” basis is used to avoid the hazard of the reinsurer cancelling a contract and
leaving the insurer without cover for the duration of the policies.

The defects of this system are the long run-off and the difficulty of assigning a claim to the proper
excess of loss contract year.

Q 71. Risk Retention Group can be described as __________ .

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 least one state of US to handle
liability insurance
A fund constituted to address a loss if it were to occur.
A group of insurance companies that pools assets, enabling them to provide an amount of insurance
substantially more than can be provided by individual companies
An insurer created and wholly owned by its sponsors to provide a facility to aggregate, insure and
reinsure only their risks.
A mutual group or pool within an association or body to share retained risk.

UnAttempted

CORRECT ANSWER:

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 least one state of US to handle
liability insurance

Explanation:

Risk Retention Group originated in the US with the passing of Liability Risk Retention Act, 1981. A
risk-retention group (RRG) 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
least one state of US to handle liability insurance.

In the US it addresses gaps in liability cover for its members such as for medical malpractice.

Q 72. For Marine - Cargo reinsurance, Loss exposures fall into which of these classes ? 1. Total loss 2.
Particular average claims which need not affect all the cargo 3. General average which affect all
cargo on board the vessel
Only 1
2 and 3
Only 2
All 1, 2 and 3
1 and 3

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

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Explanation:
Loss exposures fall into two distinct classes, viz.
i. Total loss and
ii. General average which affect all cargo on board the vessel and particular average claims which
need not affect all the cargo.

Q 73. With respct to 'Loss advices and accounting of losses' clause, which of these statements is/are
TRUE? 1. Losses will normally be debited to the reinsurer in the accounts 2. If any individual loss
exceeds an agreed sum, the ceding insurer may request for immediate settlement of loss by the
reinsurer for his share 3. Advice to be given to the reinsurer when a loss reaches an agreed
amount even if the ceding insurer does not request special settlement.
All 1, 2 and 3
Only 1
Only 2
1 and 3
2 and 3

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:
Loss advices and accounting of losses - This clause deals comprehensively with all aspects of
losses affecting the reinsurance and aims to cover the following points:
a) Losses will normally be debited to the reinsurer in the accounts.
b) If any individual loss exceeds an agreed sum, the ceding insurer may request for immediate
settlement of loss by the reinsurer for his share (known as ‘cash loss request’).
c) 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 request special settlement. This is known the
`preliminary loss advice'.
d) The ceding insurer has the sole right to adjust, compromise and settle claims and the reinsurer
follows the settlement (including ex-gratia payments) being liable for his proportion of all loss
adjustment expenses (excluding the insurer’s salaries and overheads). The reinsurer shares
proportionately in recoveries if any.
e) Requirements for advising outstanding losses at anniversary date.

Q 74. An insurance company has fixed its retention limit at Rs 50,00,000 for property insurance and it
has received a proposal for Rs. 40,00,000. What will be the retention percentage?
80%
75%
100%
NIL
120%

UnAttempted

CORRECT ANSWER:
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100%

Explanation:
Retention Limit is Rs 50 Lakhs and the proposal received for insurance is for Rs 40 Lakhs. The proposal
received is less then the retention limit of the insurer. So there will not be any need of reinsurance. The insurer
can the entire 100% risk.

Q 75. As per ______ clause, the reinsured can cancel the reinsurance contract (and then seek a new
reinsurer) if the reinsurer is downgraded by the rating organizations.
Cut Through endorsement
Errors & omissions
Downgrade
Reinstatement
Hours

UnAttempted

CORRECT ANSWER:

Downgrade

Explanation:

Downgrade clause allows the reinsured to cancel the reinsurance contract (and then seek a new
reinsurer) if the reinsurer is downgraded by the rating organizations.

Q 76. In which type of reinsurance business the underwriter should be conversant with various
contractual conditions in addition to being up-to-date with market conditions?
Proportional reinsurance
Non proportional reinsurance
Treaty reinsurance
Facultative reinsurance
Facultative and Treaty reinsurance

UnAttempted

CORRECT ANSWER:

Treaty reinsurance

Explanation:

Premium volume can be built up faster in treaty business but a treaty underwriter should be
conversant with various contractual conditions in addition to being up-to-date market conditions.
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He must have the machinery to build up statistics and the ability to interpret them.

Q 77. Which of these is a type of reinsurance contract? 1. Facilitative reinsurance 2. Facultative

reinsurance 3. Entreaty reinsurance
Only 1
Only 2
All 1, 2 and 3
1 and 3
2 and 3

UnAttempted

CORRECT ANSWER:

Only 2

Explanation:
There are only two ways a reinsurance contract can be arranged. It can be either:
a) One-off for a single policy: Facultative reinsurance
b) Automatic for a defined group of policies: Treaty reinsurance

Q 78. 'If the ceding insurer introduces any change in his business approach during the currency of the
contract, the consent of his reinsurers is necessary to ensure continuance of the reinsurance
agreement'. This is as per which clause?
Underwriting: Retention and limits
Business Covered: Insuring clause non-proportional
Net retained lines: Protecting net retention
Ultimate net loss: Amount for XL recovery
Original conditions :Follow the fortunes

UnAttempted

CORRECT ANSWER:

Underwriting: Retention and limits

Explanation:
Underwriting: Retention and limits -
The terms on which the reinsurer makes an acceptance are based on the information provided by
the ceding insurer during negotiations in respect of his limits, retentions and other related matters.
If the ceding insurer introduces any change in his business approach during the currency of the
contract, the consent of his reinsurers is necessary to ensure continuance of the reinsurance
agreement.

Q 79.
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Which of these statements is / are true with respect to Excess of Loss Treaty? 1. Both working and
catastrophe covers arranged on a layered basis provide reinsurance protection to the retained
business and enable cost reduction in using less of proportional arrangements 2. The lower layer
is rated on exposure 3. The higher layers tend to be rated on the extent of cover provided
2 and 3
Only 1
Only 2
All 1, 2 and 3
1 and 2

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:
Excess of Loss Treaty : Both working and catastrophe covers arranged on a layered basis provide
reinsurance protection to the retained business and enable cost reduction in using less of
proportional arrangements. The lower layer is rated on exposure while the higher layers tend to be
rated on the extent of cover provided.

Q 80. Which type of treaty is a preferred form of retrocession of reinsurance accounts?

Surplus Treaty
Quota Share Treaty
Facultative Obligatory Treaty
Excess of Loss Treaty
Variable Quota Share Treaty

UnAttempted

CORRECT ANSWER:

Quota Share Treaty

Explanation:
Quota Share Treaty is used mainly for small accounts where the extra administrative burden of a
surplus would be too great. It is a preferred form for retrocession of reinsurance accounts.

It provides a wider spread for the net retained portfolio of the insurer with an improved balance thus
ensuring stability in profits.

Q 81. Networth Insurance Company has fixed its retention limit at Rs 5,00,000. The insurance company
has received a proposal for a sum insured of Rs 75,00,000. It has a has a 1st surplus treaty of 5
lines, 2nd surplus treaty of 10 lines and 3rd surplus treaty of 10 lines. Calculate how much of this
will go to the 1st surplus treaty.
Rs. 50,00,000
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Rs. 75,00,000
Rs. 35,00,000
Rs. 25,00,000
NIL

UnAttempted

CORRECT ANSWER:

Rs. 25,00,000

Explanation:

The amount ceded to a surplus treaty is normally expressed in the number of “lines” it contains. A
“line” is equal to the ceding insurer’s retention.

The insurance company has a retention limit of Rs 5 lakhs.

So the 1st surplus of 5 lines will be equal to 5 X 5 lakhs = Rs 25 lakhs -- Answer

(Similarly - The 2nd surplus of 10 lines will be equal to 10 X 5 lakhs = Rs 50 lakhs and so on)

Q 82. Which of these statements is /are true for - 'Business Covered: Attachment of cessions –
proportional' clause ? 1. This clause deals with the attachment of individual cession and is used in
respect of automatic forms of reinsurance such as a treaty. 2. This clause intends that reinsurance
will apply simultaneously and automatically with that of the ceding insurer as soon as his
retention is exceeded with reference to surplus reinsurance 3. For quota share reinsurance the
cession would be simultaneous and automatic with the liability of the ceding insurer under his
original acceptance.
Only 1
1 and 2
All 1, 2 and 3
Only 3
2 and 3

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:
Business Covered: Attachment of cessions – Proportional :
This clause deals with the attachment of individual cession and is used in respect of automatic
forms of reinsurance such as a treaty. This clause intends that reinsurance will apply
simultaneously and automatically with that of the ceding insurer as soon as his retention is
exceeded with reference to surplus reinsurance and for quota share reinsurance the cession would
be simultaneous and automatic with the liability of the ceding insurer under his original acceptance.

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Q 83. Which of these statements is/are TRUE with respect to Property Reinsurance? 1. Statistics
teaches us that the claims experience of any portfolio of risks will vary from one year to another
2. When dealing with large risks, it is possible to apply a standard schedule of retentions to the
best advantage 3. It is customary in cases of large risks to have the risks inspected and to fix
retentions individually
Only 1
Only 1 and 3
All 1, 2 and 3
Only 2 and 3
Only 2

UnAttempted

CORRECT ANSWER:

Only 1 and 3

Explanation:
When dealing with large risks, it is not possible to apply a standard schedule of retentions to the
best advantage. It is customary in such cases to have the risks inspected and to fix retentions
individually.
Statistics teaches us that the claims experience of any portfolio of risks will vary from one year to
another.

Q 84. Which type of business may be sought by insurers / reinsurers to increase their net premium?
Reciprocal business
Non reciprocal business
Gross account
Net account
Treaty reinsurance business

UnAttempted

CORRECT ANSWER:

Non reciprocal business

Explanation:
The basis on which to underwrite business is to be considered i.e., reciprocal or non-reciprocal.

An insurer or reinsurer may have his own basic treaties to serve as a medium of reciprocity for the
inward business in which case he may go in for reciprocal trading. On the other hand, non-
reciprocal business may also be sought by them to increase their net premium.

Q 85. To what extent this policy can be actively pursued depends on - 1. The standing of the insurer /
reinsuer 2. Insurer's capacity to generate a good gross direct account 3. Insurer's capacity to cede
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to reinsurers a balanced portfolio with a good premium – liability ratio

Only 1
All 1, 2 and 3
Only 3
Only 2
1 and 3

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:
Pursuance of policy :
To what extent this policy can be actively pursued depends on the standing of the insurer / reinsuer,
his capacity to generate a good gross direct account and to cede to reinsurers a balanced portfolio
with a good premium – liability ratio which produces a healthy experience over a period of time.
Such an approach enables an insurer build up his funds and attempt higher retentions.

Q 86. A derivative security is a financial security whose value depends upon - 1. Exchange rates 2. Stock
prices, 3. Interest rates
1 and 2
All 1, 2 and 3
Only 2
1 and 3
2 and 3

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:

A derivative security is a financial security whose value depends upon more primary valuables such
as Stock prices, Exchange rates and Interest rates.

These primary variables are called cash market variables. The main forms of derivatives are:
a) futures and forwards,
b) options and swaps.

Q 87. The accounts for _______ of business are normally rendered on an “Accounts Year” basis. 1.
Marine Proportional Reinsurance 2. Fire Proportional Reinsurance 3. Accident Proportional
Reinsurance
Only 1
Only 2

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1 and 2
2 and 3
All 1, 2 and 3

UnAttempted

CORRECT ANSWER:

2 and 3

Explanation:
Fire and Accident Proportional Reinsurance: The accounts for this type of business are normally
rendered on an “Accounts Year” basis. The premiums are usually shown at original gross rates and
the reinsurance commission rate is then applied.

Marine Proportional Reinsurance: The accounts for this type of business are normally rendered on
an “Underwriting Year” basis.

Q 88. Identify the objective of the UNCTAD.

For actively promoting free trade in services.
For accepting reinsurance and retrocession business from the African and Asian markets
For assisting the respective governments in setting up and operating catastrophe insurance
programmes
For providing political risk insurance (guarantees) to the private sector
For promoting regional pools supporting the countries in their respective regions

UnAttempted

CORRECT ANSWER:

For promoting regional pools supporting the countries in their respective regions

Explanation:

After the Second World War, the United Nations Conference on Trade and Development (UNCTAD)
advised a number of the developing countries in Africa and the Far East to reduce their reliance on
foreign insurers by setting up state corporations.

In consequence of the efforts of UNCTAD the Asian Reinsurance Corporation, Bangkok, and African
Reinsurance Corporation, Lagos and Casablanca, operate as regional pools supporting the
countries in their respective regions.

Q 89. Find the correct factor/s from following which is relevant in reinsurance programme design, to
ensure prompt cover for the newer and increased exposures being added by new business? 1.
Business development 2. Marketing Plans 3. Reinsurance market conditions

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Only 1
Only 3
All 1, 2 and 3
1 and 2
1 and 3

UnAttempted

CORRECT ANSWER:

1 and 2

Explanation:

Business development & marketing plans - to ensure prompt cover for the newer & increased
exposures being added by new business.

Q 90. When reinsurances are ceded and accepted it is important to establish the credit rating of the
reinsurer with reference to his - 1. Business continuity 2. Ability to settle 3. His country`s foreign
exchange position
All 1, 2 and 3
Only 1
Only 3
1 and 2
1 and 3

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:
When reinsurances are ceded and accepted it is important to establish the credit rating of the
reinsurer with reference to his:
a) business continuity,
b) ability to settle, and
c) his country`s foreign exchange position.

Q 91. A ________ may be affected on an individual risk where a ‘one off’ type of large loss may be
expected to occur.
Working Excess of loss
Stop loss
Surplus facultative reinsurance
Risk Excess of loss
Catastrophe Excess of loss - Cat XL

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UnAttempted

CORRECT ANSWER:

Surplus facultative reinsurance

Explanation:

Surplus facultative & Facultative Excess of Loss reinsurance - Surplus Facultative reinsurance may
be affected on an individual risk where a ‘one off’ type of large loss may be expected to occur or
Facultative XL reinsurance may be arranged on a number of such risks.

Q 92. Which of these is / are features of Operative clause ? 1. The territorial scope is stated 2. The
business as covered is stated 3. Maximum liability under the treaty is clearly mentioned
1 and 3
2 and 3
Only 2
Only 3
All 1, 2 and 3

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:

Operative clause: Reinsuring the original Risk - This clause is commonly found in all agreements
and describes without any ambiguity the business coming within the scope of a reinsurance
contract. The essential features of this clause are:-

a) It brings out clearly the obligatory nature of reinsuring, in that the insurer binds himself to cede
and the reinsurer binds himself to accept.
b) The method of cession is stated
c) The business as covered is stated. This would usually include direct insurances and exclude
retrocessions of inward reinsurances.
d) The territorial scope is stated
e) Maximum liability under the treaty is clearly mentioned as so many times the net retention
(number of lines) as well as in amount.
f) The insurer is the sole judge of what constitutes his own risk and to determine his retention
accordingly subject to his limits of retention

Q 93. Which of these statements is / are TRUE with respect to Brokerage? 1. Brokerage is payable by
the ceding insurer and not by reinsurer 2. Statements of accounts reflect brokerage which is
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usually shown in a letter of enclosure or a separate additional statement 3. Statements of accounts

are prepared by brokers based upon ceding insurers statements to render to reinsurers for
confirmation to settle
Only 1
Only 3
All 1, 2 and 3
1 and 3
2 and 3

UnAttempted

CORRECT ANSWER:

Only 3

Explanation:

In all reinsurance placements through brokers, statements of accounts and balances are sent
through them. Statements of accounts are prepared by brokers based upon ceding insurers
statements to render to reinsurers for confirmation to settle.

Brokerage is payable by the reinsurer and not by ceding insurer. Statements of accounts do not
reflect brokerage which is usually shown in a letter of enclosure or a separate additional statement.

Q 94. When reinsurance is effected based upon probable maximum loss and the estimate goes wrong it
would adversely affect the both retained loss of the reinsured and proportional share of loss to
reinsurers. In order to protect themselves, reinsurers incorporate the __________ clause.
Downgrade clause
Extension of reinsurance cover clause
Reinstatement clause
PML excess clause
Errors & omissions clause

UnAttempted

CORRECT ANSWER:

PML excess clause

Explanation:
PML excess clause: Error in the estimated probable maximum loss (PML)
When reinsurance is effected based upon probable maximum loss and the estimate goes wrong it
would adversely affect the both retained loss of the reinsured and proportional share of loss to
reinsurers. In order to protect themselves, reinsurers incorporate this clause.

Q 95. Which of these statements relates to Variable Quota Share Treaty?

It provides a wider spread for the net retained portfolio of the insurer with an improved balance thus
ensuring greater stability in underwriting surplus
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This is a treaty where the amount reinsured is expressed as being between a minimum (say 20%) and
maximum (say 80%) quota share
This enables direct insurers to produce a more balanced book of business for themselves and for
their treaty reinsurers.
This can be placed in weak reinsurance market conditions and is therefore not adequate to be relied
upon for primary reinsurance capacity.
Its a broad form of reinsurance to protect a whole portfolio of net retained business from exceeding
an agreed loss ratio and hence ensure profit to the insurer

UnAttempted

CORRECT ANSWER:

This is a treaty where the amount reinsured is expressed as being between a minimum (say 20%) and
maximum (say 80%) quota share

Explanation:
Variable Quota Share Treaty -
This is a treaty where the amount reinsured is expressed as being between a minimum (say 20%)
and maximum (say 80%) quota share. Although it is said to be a quota share it has all the
characteristics of a surplus.

Variable quota share is a method in which the % of retention varies for different limit of sums
insured and reduces with increase in limit of sum insured.

Q 96. The most common method of reinsurance in Motor reinsurance is _______ . 1. Excess loss of
cover 2. Facultative reinsurance 3. Surplus treaty
Only 1
Only 2
Only 3
All 1, 2 and 3
2 and 3

UnAttempted

CORRECT ANSWER:

Only 1

Explanation:

In India, all motor insurances have been reinsured on working excess of loss basis.

Q 97. For which of the following under Miscellaneous accident business, normal method of reinsurance
is surplus basis? 1. Burglary 2. Personal Accident 3. Cash-in-Transit
Only 2

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Only 3
1 and 2
All 1, 2 and 3
2 and 3

UnAttempted

CORRECT ANSWER:

All 1, 2 and 3

Explanation:
Among the other classes of miscellaneous accident business, perhaps the more important are:
- Personal Accident,
- Cash-in-Transit and
- Burglary.

The normal method of reinsurance in the Miscellaneous Department is surplus basis

Q 98. Pool can be described as __________ .

An insurer created and wholly owned by its sponsors to provide a facility to aggregate, insure and
reinsure only their risks
A mutual group or pool within an association or body to share retained risk
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 least one state of US to handle
liability insurance
A group of insurance companies that pools assets, enabling them to provide an amount of insurance
substantially more than can be provided by individual companies to ensure large risks such as nuclear
power stations are protected
A fund constituted to address a loss if it were to occur.

UnAttempted

CORRECT ANSWER:

A group of insurance companies that pools assets, enabling them to provide an amount of insurance
substantially more than can be provided by individual companies to ensure large risks such as nuclear
power stations are protected

Explanation:

Pool: A group of insurance companies that pools assets, enabling them to provide an amount of
insurance substantially more than can be provided by individual companies to ensure large risks
such as nuclear power stations are protected

Q 99. Which of these statements is/are TRUE with respect to Lloyd’s syndicate? 1. Each member of a
Syndicate has unlimited liability 2. The Syndicates are supervised principally by the Department
of Trade 3. Lloyd’s is an insurer and not a market
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Only 1
Only 2
All 1, 2 and 3
2 and 3
1 and 2

UnAttempted

CORRECT ANSWER:

Only 1

Explanation:

Lloyd’s is a market and not an insurer. The Underwriting Room at Lloyd’s is a unique place where
Lloyd’s brokers negotiate specific insurance programmes, originating from all over the world, with
expert underwriters.

Lloyd’s Syndicates are arranged on an entirely different basis as compared to insurance and
reinsurance companies. Each member of a Syndicate has unlimited liability and the Syndicates are
supervised principally by the Committee of Lloyd’s rather than the Department of Trade.

Q In a reinsurance programme design, the relevance of investment and liquidity policy is to ______ .
100.
help take decisions on making retentions & type of reinsurance arrangements
influence retentions, cover limits and reinsurance costs
ascertain cash flow produced by business
decide on the relation between largest risk and catastrophe exposures accepted by insurer on a gross
and net basis to judge financial effects on insurers capital base
help form managemnt philosophy on programme objectives & its confidence in underwriting &
claims handling teams.

UnAttempted

CORRECT ANSWER:

ascertain cash flow produced by business

Explanation:

Relevance of Investment & liquidity policy - Ascertaining cash flow produced by business.

Out of 100 questions 100 are un attempted.

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Q 1. Select the incorrect option from the below with regards to the statement: ‘Treaty reinsurance is
an obligatory contract in which each party foregoes certain rights such as 1. The reinsurer may
not decline risks falling within the scope of agreements 2. The pricing for each risk can be
determined individually 3. The insurer must allow all risks coming within the scope to be covered
2 and 3
Only 2
1 and 2
Only 3
Only 1

CORRECT ANSWER
Explanation:

Treaty reinsurance is an obligatory contract in which each party foregoes certain rights such as

a) the reinsurer may not decline risks falling within the scope of the agreements and

b) the insurer must allow all risks coming within the scope to be covered.

Q 2. Which is the correct statement with regards to calculating Premium for XL cover rate? 1. The
greater the limit to the reinsurer the greater his exposure and the higher the rate. 2. Larger the
deductible smaller is the exposure to and premium for excess of loss covers. 3. The lower the
retention of the reinsured, the larger the number of claims the reinsurer can expect to exceed it.
Only 1
1 and 2
Only 3
1 and 3
1,2 and 3

WRONG ANSWER

CORRET ANSWER:
1,2 and 3
Explanation:

Following points are considered while calculating Premium for XL cover:

Larger the deductible (also termed as Underlying or priority) smaller is the exposure to & premium
for excess of loss covers.

The lower the retention of the reinsured the larger the number of claims the reinsurer can expect to
exceed it, therefore the higher will be the rate.

The greater the limit to the reinsurer the greater his exposure and the higher the rate.

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Q 3. Just after an acceptance of reinsurance is made, a concurrent decision will have to be taken
regarding its retention and underwriting. What is the role of the accepting insurer or reinsurer
here? 1. He may arrange a specific retrocession on an individual acceptance with another
reinsurer 2. He may retain it wholly for his net account 3. He may retrocede a part of the
acceptance to a retrocession arrangement
Only 3
2 and 3
1,2 and 3
1 and 2
Only 1

CORRECT ANSWER
Explanation:

As soon as an acceptance is made, a concurrent decision will have to be taken regarding its
retention and underwriting. The accepting insurer or reinsurer may retain it wholly for his net
account or retrocede a part of the acceptance to a retrocession arrangement, if any, or even arrange
a specific retrocession on an individual acceptance with another reinsurer.

Q 4. ABC Ltd., an insurer wants to protect his whole book of business. Hence, he enters into an
arrangement where a single composite cover is installed for protection of its whole business,
incorporating all classes of business. This arrangement is known as __________________.
Excess of loss
Aggregate excess of loss
Whole account excess of loss
Umbrella excess of loss
Risk Excess of loss

CORRECT ANSWER
Explanation:

There are variants to Stop Loss and Aggregate Excess of Loss covers. A reinsured may wish to
protect his whole book of business. 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 Excess of Loss cover. This method is common in
miscellaneous class of business wherein limits and priorities are set for each different sub-class.

Q 5. According to loss advice and accounting of loss clause, if any individual loss exceeds an agreed
sum, the ceding insurer may request for immediate settlement of loss by the reinsurer for his
share. This is called_________________.
Outstanding loss request
Accounting of losses
Cash loss request
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Preliminary loss advice

Outstanding loss advice

CORRECT ANSWER
Explanation:

Loss advices and accounting of losses clause deals comprehensively with all aspects of losses
affecting the reinsurance and aims to cover the following points:

a) Losses will normally be debited to the reinsurer in the accounts.

b) If any individual loss exceeds an agreed sum, the ceding insurer may request for immediate
settlement of loss by the reinsurer for his share (known as ‘cash loss request’).

Q 6. IRDAI has stipulated the use of reinsurers with rating ______, in India.
Not less than AA
Not less than BB
Not less than AAA
Not less than BBB
Not less than A

CORRECT ANSWER
Explanation:

With the emergence of credit rating even Regulators find it useful as a tool to limit the credit risk of
the whole market.

In India IRDA has stipulated the use of reinsurers with rating not less than BBB.

Q 7. On what basis did the profit commission statements for Aviation proportional treaties are
prepared? 1. Aggregate basis 2. Accounting year basis 3. Underwriting year basis
Only 1
Only 3
2 and 3
1 and 2
1,2 and 3

WRONG ANSWER

CORRET ANSWER:
Only 3
Explanation:

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Fire and Accident proportional treaties are usually on an accounting year basis and Marine and
Aviation proportional treaties on an underwriting year basis. It is rare for a non-proportional treaty
of any class to have a profit commission clause.

However, if this is provided, it will usually be on an underwriting year basis.

Q 8. Complete the sentence: Multi line package can be designed to spread risk over time with limits
and deductibles set for _________________. 1. Each year 2. Each week 3. Each month
Only 1
Only 3
1 and 2
2 and 3
1,2 and 3

CORRECT ANSWER
Explanation:

Multi line package envisages bundling several lines of traditional risks like fire, business
interruption and liability and combining special or uninsurable risks like exchange rate fluctuation
or political and business risks.

The package can be designed to spread risk over time with limits and deductibles set for each year.
Premium is set on an integrated basis for the whole package. Such packages are also designed as
part of `Enterprise wide Risk Management`.

Q 9. _______________clause includes direct insurances and excludes retrocessions of inward

reinsurances.
Alterations
Insolvency of other reinsurers
Errors and Omissions
Operative clause
Commencement and terminations

WRONG ANSWER

CORRET ANSWER:
Operative clause
Explanation:

Operative clause: Reinsuring the original Risk

This clause is commonly found in all agreements and describes without any ambiguity the business
coming within the scope of a reinsurance contract. One of the essential features of this clause is: -

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The business as covered is stated. This would usually include direct insurances and exclude
retrocessions of inward reinsurances.

Q 10. The statement, “In practice a `Two Risk Warranty` is included within the contract to denote
minimum accumulation from two risks,” comes under_____________________.
Risk XL cover
Retention Per Event
Catastrophe XL covers
Premium for XL cover
Minimum and Deposit Premium

WRONG ANSWER

CORRET ANSWER:
Retention Per Event
Explanation:

Retention Per Event:

Catastrophe covers protect the insurer against unknown accumulations arising out of one event.
The retention under this type of excess of loss is normally more than the amount retained under
each individual risk. This means that two or more risks have to be involved in a single loss before
the excess of loss is affected. In practice a `Two Risk Warranty` is included within the contract to
denote minimum accumulation from two risks.

Q 11. Choose from below, the correct statement regarding ‘brokerage’. 1. The percentage of brokerage
payable is applied to premiums written on gross, net or partial net basis and this must be clearly
stipulated in the treaty agreement. 2. Where a reinsurer receives a share of a treaty via a broker,
he will normally agree to pay brokerage. 3. The broker will either include his brokerage in the
actual statement of account for the business or render a separate statement for brokerage due.
1,2 and 3
1 and 2
Only 1
Only 2
1 and 3

CORRECT ANSWER
Explanation:

Where a reinsurer receives a share of a treaty via a broker, he will normally agree to pay brokerage.

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The broker will either include his brokerage in the actual statement of account for the business or
render a separate statement for brokerage due.

The percentage of brokerage payable is applied to premiums written on gross, net or partial net
basis and this must be clearly stipulated in the treaty agreement.

Q 12. The unit of currency expressed in a treaty agreement is the________________________,as per

currency clause.
Domestic currency of the reinsurer
Domestic currency of the insured
US Dollars
Pounds
Domestic currency of the ceding insurer

CORRECT ANSWER
Explanation:

As per Currency clause, the unit of currency expressed in a treaty agreement is the domestic
currency of the ceding insurer concerned. Thus, a treaty of an Indian insurer will have its maximum
liability, cash loss limit etc. expressed in Indian Rupees.

Q 13. Reinsurance companies, which do not wish to establish their own reinsurance organisation in
London, can join the international reinsurance business through the following: 1. Membership of
one of underwriting agencies 2. Composite companies 3. Professional reinsurers
1,2 and 3
Only 1
Only 2
Only 3
1 and 2

UnAttempted

CORRECT ANSWER:

Only 1

Explanation:

For those companies which do not wish to establish their own reinsurance organisation in London,
the market offers unrivalled opportunities for them to participate in international reinsurance
business through membership of one of a number of underwriting agencies.

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Q 14. ‘Two parties agree to a specified trade in future at a specified time’. This statement is true for
which of the following arrangement/s? 1. Futures 2. Options 3. Forwards
Only 1
Only 2
1, 2 and 3
1 and 3
2 and 3

CORRECT ANSWER
Explanation:

Futures and forwards are agreements where two parties agree to a specified trade in future at a
specified time.

Q 15. What are the features of alternative risk transfer products? 1. Custom-tailored to the unique
needs of the client 2. Coverage provided on a multiyear basis 3. Coverage applicable to multiple
lines
Only 1
Only 2
1,2 and 3
2 and 3
1 and 2

UnAttempted

CORRECT ANSWER:

1,2 and 3

Explanation:

All alternative risk transfer products have one or more of the following features:

a) custom-tailored to the unique needs of the client;

b) coverage provided on a multiyear basis;

c) coverage applicable to multiple lines; or

d) payoff can be triggered by multiple factors, rather than a single event

Q 16. ____________ clause assists to include the consequence of a loss event beyond the expiry date as if
it was within the period of reinsurance through extended expiry of cover.
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PML excess clause

Extension of reinsurance cover clause
Cut through endorsement clause
Downgrade clause
Reinstatement clause

CORRECT ANSWER
Explanation:

It is likely that a reinsurance cover expires when a loss event is in state of occurrence. ‘Extension of
reinsurance cover’ clause assists to include the consequence of such loss beyond the expiry date
as if it was within the period of reinsurance through extended expiry of cover.

Q 17. State which of the following statements are correct. 1. Inflation tends to cause higher claims
without compensatory increase in sum insured 2. In times of bad results, reinsurers would
normally tend to require higher retentions with the clear intention of causing the insurer to have
a greater involvement in the losses and by implication, provoke them to initiate some remedial
action 3. To preserve the calculated acceptable degree of fluctuation of results an increase in
retention exactly equivalent to the economic inflation is called for
1,2 and 3
1 and 2
Only 1
2 and 3
Only 3

CORRECT ANSWER
Explanation:

To preserve the calculated acceptable degree of fluctuation of results an increase in retention

exactly equivalent to the economic inflation is called for.

Failing this the insurer’s retention is effectively falling back. Inflation also tends to cause higher
claims without compensatory increase in sums insured.

In times of bad results, reinsurers would normally tend to require higher retentions with the clear
intention of causing the insurer to have a greater involvement in the losses and, by implication,
provoke them to initiate some remedial action.

Q 18. Which of the following statement/s is/are correct with regards to F.A.I.R? 1. F.A.I.R operates an
Aviation Pool and a Oil & Energy Insurance Syndicate. 2. The Retrocession shares to be allocated
to the members are fixed every month. 3. All the business ceded to the Pool is retroceded back to
the members with an almost 100 % reciprocity.
1,2 and 3
Only 1
Only 2

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1 and 3
2 and 3

CORRECT ANSWER
Explanation:

The Federation of Afro-Asian Insurers & Reinsurers (F.A.I.R.) set up the F.A.I.R Non-Life
Reinsurance Pool with effect from 1.1.1974. The principal object of the Pool is to accept reinsurance
and retrocession business from the African and Asian markets.

All the business ceded to the Pool is retroceded back to the members with an almost 100 %
reciprocity. The Retrocession shares to be allocated to the members are fixed every year. F.A.I.R
operates an Aviation Pool and a Oil & Energy Insurance Syndicate.

Q 19. List down the enhanced services offered by brokers in reinsurance business. 1. Dynamic financial
analysis 2. Catastrophe modeling 3. Various e-commerce initiatives
Only 2
1,2 and 3
Only 3
1 and 3
2 and 3

CORRECT ANSWER
Explanation:

In some cases, brokers have turned to marketing new or enhanced products and services such as:

a) catastrophe modeling,

b) dynamic financial analysis and

c) various e-commerce initiatives – to attract new clients.

Q 20. What is specified in a proportional treaty document? 1. Class of Business Covered 2. Territorial
Scope 3. Underlying Basis
1,2 and 3
Only 1
Only 2
1 and 3
Only 3

CORRECT ANSWER
Explanation:

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Proportional Treaty as a document is an agreement between a ceding insurer and his reinsurers to
automatically accept risks that the ceding insurer intends to share.

The treaty arrangement between ceding insurer and reinsurer will cover surplus only from specified
risks within the scope of the treaty. The treaty as a document of agreement will specify the
following:

a. Class of Business Covered

b. Territorial Scope
c. Underlying Basis

Q 21. Identify from below, the true statement regarding Errors and Omissions clause.
The important features of this clause are the possibility of making amendments, consent of both
parties, addendum forming integral part of and binding on the parties.
This clause offers the reinsurer the right to inspect any book or record of the ceding insurer which
are relevant to the business reinsured.
This clause is usually included in a reinsurance agreement whereby it is stated that the loss to the
reinsurer will not be increased due to the inability of the ceding insurer to collect from another
reinsurer.
This clause deals with the commencement of reinsurance and the manner and the circumstances in
which it is terminated.
This clause anticipates immediate correction and nothing in the clause would operate to increase the
liability of the reinsurers beyond agreed limits.

CORRECT ANSWER
Explanation:

This clause is designed to protect the ceding insurer against any inadvertent delays, errors or
omissions.

The clause expects immediate rectification and nothing in the clause would operate to increase the
liability of the reinsurers beyond agreed limits.

Q 22. Intermediaries clause involves the following:

To give the reinsurer the right to inspect any book or record of the ceding insurer which are relevant
to the business reinsured
There is a possibility of making amendments, consent of both parties, addendum forming integral
part of and binding on the parties
It shifts all credit risk to reinsurers by providing that the ceding insurer’s payments to the
intermediary be deemed payments to the reinsurer
To expect immediate rectification and nothing in the clause would operate to increase the liability of
the reinsurers beyond agreed limits
It is usually included in a reinsurance agreement whereby it is stated that the loss to the reinsurer
will not be increased due to the inability of the ceding insurer to collect from another reinsurer

UnAttempted

CORRECT ANSWER:

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It shifts all credit risk to reinsurers by providing that the ceding insurer’s payments to the intermediary
be deemed payments to the reinsurer

Explanation:

Most intermediary clauses shift all credit risk to reinsurers by providing that:

a) The ceding insurer`s payments to the intermediary be deemed payments to the reinsurer.

b) The reinsurer's payments to the intermediary are not payments to the ceding insurer until
actually received by him.

This clause is compulsory in some countries. This clause is not used if reinsurance is directly
placed.

Q 23. A treaty underwriter must be familiar with the following: 1. Machinery to build up statistics and
the ability to interpret them 2. Various contractual conditions 3. Up-to-date market conditions
Only 2
1 and 2
1,2 and 3
Only 1
2 and 3

CORRECT ANSWER
Explanation:

Premium volume can be built up faster in treaty business but a treaty underwriter should be
conversant with various contractual conditions in addition to being up-to-date market conditions.
He must have the machinery to build up statistics and the ability to interpret them.

Q 24. Which of the following statements is about the treaty reinsurance business? 1. Premium volume
can be built up faster 2. Each offer will have to be scrutinized individually 3. Administrative work
is less
2 and 3
1 and 3
1,2 and 3
Only 1
Only 2

WRONG ANSWER

CORRET ANSWER:
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1 and 3
Explanation:

Facultative reinsurance business will necessarily involve more administrative work because each
offer will have to be scrutinised individually and either accepted or declined.

Premium volume can be built up faster in treaty business.

Q 25. Identify the clause found in all reinsurance agreements and shows the intentions of the parties to
resolve disputes as to the interpretation of the agreement.
Arbitration clause
Set-off clause
Alterations clause
Intermediaries clause
Accounting clause

WRONG ANSWER

CORRET ANSWER:
Arbitration clause
Explanation:

Arbitration clause is found in all reinsurance agreements and shows the intentions of the parties to
resolve disputes as to the interpretation of the agreement or the rights with respect to any
transaction involved whether before or after termination of the agreement by arbitration rather than
resorting to direct court action.

Q 26. Which package can be designed to spread risk over time with limits and deductibles set for each
year?
Multi line package
Multi trigger cover package
Contingent capital solution package
Financial reinsurance package
Finite risk package

WRONG ANSWER

CORRET ANSWER:
Multi line package
Explanation:

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Multi- Line / Multi- Year Package envisages bundling several lines of traditional risks like fire,
business interruption and liability and combining special or uninsurable risks like exchange rate
fluctuation or political and business risks.

The liability limit and deductible are aggregated across all coverages and risk exposures and is not
set individually.

The package can be designed to spread risk over time with limits and deductibles set for each year.
Premium is set on an integrated basis for the whole package. Such packages are also designed as
part of `Enterprise-wide Risk Management`.

Q 27. Choose the correct statement from below, regarding Loss advices and accounting of losses clause?
This clause deals comprehensively with all aspects of losses affecting the reinsurance.
The ceding insurers adopt rates of exchange as at the beginning of the year for the purpose of
accounting of various foreign currencies.
This clause gives the reinsurer the right to inspect any book or record of the ceding insurer which are
relevant to the business reinsured.
This clause is usually included in a reinsurance agreement whereby it is stated that the loss to the
reinsurer will not be increased due to the inability of the ceding insurer to collect from another
reinsurer.
The important features of this clause are the possibility of making amendments, consent of both the
parties, addendum forming integral part of and binding on the parties.

WRONG ANSWER

CORRET ANSWER:
This clause deals comprehensively with all aspects of losses affecting the reinsurance.
Explanation:

Loss advices and accounting of losses clause deals comprehensively with all aspects of losses
affecting the reinsurance and aims to cover the following points:

a) Losses will normally be debited to the reinsurer in the accounts.

b) If any individual loss exceeds an agreed sum, the ceding insurer may request for immediate
settlement of loss by the reinsurer for his share

c) Advice to be given to the reinsurer when a loss reaches an agreed amount

d) The ceding insurer has the sole right to adjust, compromise and settle claims and the reinsurer
follows the settlement being liable for his proportion of all loss adjustment expenses (excluding the
insurer’s salaries and overheads). The reinsurer shares proportionately in recoveries if any.

e) Requirements for advising outstanding losses at anniversary date.

Q 28. _____________________ calls for the disclosure by the reinsured to the reinsurer of every
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material fact relating to the risk to be insured.

Doctrine of good faith
Principle of insurable interest
Principle of subrogation
Principle of indemnity
Reinsurance contract

WRONG ANSWER

CORRET ANSWER:
Doctrine of good faith
Explanation:

The doctrine of good faith is of universal application as much to reinsurance as to direct insurance.
It calls for the disclosure by the reinsured to the reinsurer of every material fact relating to the risk
to be insured.

Q 29. The majority of the __________________ are owned by large composite companies or other
industrial / commercial concerns but operate independently from the parent insurer.
GIC Re
Captive companies
Underwriting agencies
Ceding companies
Professional reinsurance companies

WRONG ANSWER

CORRET ANSWER:
Professional reinsurance companies
Explanation:

The majority of the professional reinsurance companies are owned by large composite companies
or other industrial / commercial concerns but operate independently from the parent insurer.

Q 30. Choose the correct statement/s from below. 1. In a year of catastrophe, the strain on the resources
of the insurer must be minimum provided the programme takes care of this aspect. 2. A
programme design can be successful if its evaluation and follow up exist in full measure. 3. The
design and the follow up are based on simulation and modeling studies.
Only 1
Only 2
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1,2 and 3
1 and 2
2 and 3

CORRECT ANSWER
Explanation:

In a year of catastrophe, the strain on the resources of the insurer must be minimum provided
the programme takes care of this aspect.
A programme design can be successful if its evaluation and follow up exist in full measure.
The design and the follow up are based on simulation and modeling studies.

Q 31. The reinsurer agrees to indemnify the reinsured for losses that exceed a specified monetary
amount identified by the reinsured, under Excess of Loss contracts. Such an identified amount is
the deductible and is known as: 1. Priority 2. Underlying 3. Excess
2 and 3
Only 1
1 and 2
Only 3
1,2 and 3

CORRECT ANSWER
Explanation:

Under Excess of Loss contracts, the reinsurer agrees to indemnify the reinsured for losses that
exceed a specified monetary amount identified by the reinsured. Such an identified amount is the
deductible also known as ‘excess’ or ‘priority’ or ‘underlying’.

Q 32. Identify the alternative carrier method/s which is/are global phenomenon dating back to 1950s? 1.
Captives 2. Self insurance 3. Risk Retention Groups 4. Pools
Only 4
Only 1
2,3 and 4
1,2 and 3
1 and 2

WRONG ANSWER

CORRET ANSWER:
Only 1
Explanation:

Alternative transfer includes alternative types of risk carriers such as –

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a) Self insurance b) Risk Retention Groups c) Pools d) Captives

Self-insurance, Risk Retention Groups and Pool are largely US based concepts for alternative
carriers. These extend to markets having capabilities for advanced financial management. Captives
on the other hand are a global phenomenon dating back to 1950s.

Q 33. Identify the tax haven country from below. 1. Singapore 2. Hawaii 3. Dublin
Only 1
Only 2
1,2 and 3
2 and 3
1 and 2

WRONG ANSWER

CORRET ANSWER:
1,2 and 3
Explanation:

The captive companies are very often established in “tax havens” to avoid tax-liability in the
country of incorporation of the parent organization.

There are over 4000 captive insurers operating worldwide with nearly 35% of them located in
Bermudas. Guernsey, Cayman Islands, Bahamas, Hawaii, Isle of Man, Barbados, Luxembourg,
Dublin, Vermont, Singapore are the other locations.

Q 34. Q.14. Which of the following statements is correct? 1. The effect of an earthquake on a structure
depends on its magnitude, the depth of its epicenter 2. The effect of an earthquake on a structure
depends on the distance and direction of the epicenter as well as the type of construction of the
structure and the type of subsoil in the surroundings 3. The magnitude (M) of an earthquake is
measured on the Richter Scale and the scale of intensity
Only 1
Only 3
1,2 and 3
1 and 2
2 and 3

CORRECT ANSWER
Explanation:

The magnitude (M) of an earthquake is measured on the Richter Scale and the scale of intensity,
which is a measurement of the severity of the event, is expressed in the Modified Mercalli Scale.

The effect of an earthquake on a structure depends on various factors such as its magnitude, the
depth of its epicentre, the distance and direction of the epicentre as well as the type of construction
of the structure and the type of subsoil in the surroundings.

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Q 35. LLOYD’S was founded on ____________ insurance. 1. Motor 2. Aviation 3. Marine

1,2 and 3
2 and 3
Only 1
1 and 2
Only 3

CORRECT ANSWER
Explanation:

Lloyd’s was founded on marine insurance and it is unquestionably the world’s single most
important market for this insurance with over 13% of worldwide business being placed at Lloyd’s.

Q 36. Under principles of reinsurance, insurable interest is vested in the: 1. Insurance broker 2.
Reinsurer 3. Reinsured
2 and 3
Only 3
Only 2
1 and 3
1 and 2

CORRECT ANSWER
Explanation:

Under principles of reinsurance, Insurable interest is vested in the reinsured and the fact that he
has issued a policy and accepted liability to his original insured has been held to give him an
insurable interest sufficient to enable him to reinsure.

Q 37. Select from below, the risks covered by Pool Re which are caused by Terrorism. 1. Nuclear
contamination 2. Aircraft impact 3. Flooding
1 and 2
2 and 3
1,2 and 3
Only 1
Only 2

CORRECT ANSWER
Explanation:

In the UK, Pool Re is a good example of an alternative carrier for risk of terrorism, and covers all
risks, including nuclear and biological contamination, aircraft impact and flooding, if caused by
terrorist attacks.
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Q 38. Personal Accident business carries catastrophe exposures in respect of certain types of risks such
as: 1. Passengers in a vehicle 2. Passengers in an aircraft 3. Group PA policies
Only 1
2 and 3
Only 3
1 and 2
1,2 and 3

CORRECT ANSWER
Explanation:

Personal Accident business carries catastrophe exposures in respect of certain types of risks such
as group PA policies and passengers in a vehicle or aircraft.

Q 39. Earthquake is an example of which risk?

Financial risk
Alternate risk carrier
Event risk
Pool
Captives

CORRECT ANSWER
Explanation:

The new forms are financial hybrids and their intention is to cover a customized combination of:

a) Event risks (say, a natural disaster) and

b) Financial risk (say, commodity price fluctuation)

A simple model of such a cover is a settlement of a loss caused by an earthquake contingent on the
favourable or unfavourable fluctuation in the customer`s product price.

Q 40. What is a current opinion of the financial strengths and security characteristics of an insurer or
reinsurer with respect to his ability to pay under his insurance policies and contracts in
accordance with their terms?
SWOT analysis
Net profit assessment
Retrospection

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Gross profit assessment

Credit rating

CORRECT ANSWER
Explanation:

A credit rating is a current opinion of the financial strengths and security characteristics of an
insurer or reinsurer with respect to his ability to pay under his insurance policies and contracts in
accordance with their terms.

Q 41. Identify from below the correct option/s with regards to relevance of Reinstatement provisions. 1.
Stop loss cover 2. Catastrophe excess of loss covers 3. Risk XL cover
Only 1
Only 2
Only 3
1 and 2
2 and 3

WRONG ANSWER

CORRET ANSWER:
2 and 3
Explanation:

Typically, reinstatement provisions are relevant for catastrophe excess of loss covers.

However, this facility is extended to Risk XL cover on free of cost basis for the first or the first two
reinstatements with any subsequent reinstatement bearing a stiff additional premium.

Q 42. Identify from the following the zones which are highly exposed to earthquake. 1. Assam 2. Nepal
3. Burma
Only 1
Only 3
1,2 and 3
1 and 2
1 and 3

WRONG ANSWER

CORRET ANSWER:

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1,2 and 3
Explanation:

Zones highly exposed to earthquake are:

a) West Coast of U.S.A., Central America, Caribbean Islands, West Coast of South America.

b) Southern Europe i.e. Italy, Spain, Yugoslavia, Rumania, Greece and Turkey

c) North Africa i.e. Morocco, Algeria, Tunisia

d) Iran, Iraq and Afghanistan

e) Nepal, Assam, Burma

f) Japan, Taiwan, Philippines, Indonesia, Fiji and New Zealand.

Q 43. Choose the correct option regarding investment/s which are likely to yield higher interest but can
also result in loss of higher interest due to premature closure. 1. Stock market investments 2.
Investments in liquid assets 3. Long term investments
1 and 2
1 and 3
2 and 3
Only 3
1,2 and 3

WRONG ANSWER

CORRET ANSWER:
Only 3
Explanation:

Evidently, investments of a long term nature are likely to yield higher interest but such an
arrangement would mean illiquid asset or loss of higher interest due to premature closure.

Q 44. In India, the ______________ monitors solvency margin of insurers and reinsurers as a key
measure of their financial health and business continuity.
IRDAI
ICRA
CARE
Standard and Poor
DCR India

CORRECT ANSWER
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Explanation:

In India, the IRDAI monitors solvency margin of insurers and reinsurers as a key measure of their
financial health and business continuity.

Q 45. What is an ultimate net loss? 1. The entire amount of an insurance loss, including deductibles but
net of salvage and recoveries 2. It is the amount of the ceding insurer’s loss which is eligible for
recovery under the terms of an excess of loss treaty 3. It is the amount prior to application of
retention and reinsurance
Only 3
Only 1
Only 2
1,2 and 3
1 and 2

WRONG ANSWER

CORRET ANSWER:
Only 2
Explanation:

Ultimate Net Loss` is the amount of the ceding insurer`s loss which is eligible for recovery under
the terms of an excess of loss treaty.

Q 46. Judge the correct statement from below, regarding ‘Business Covered: Insuring clause non-
proportional’?
It states in what circumstances a recovery is available to the ceding insurer and the extent of that
recovery.
According to this clause, reinsurance will apply simultaneously and automatically with that of the
ceding insurer as soon as his retention is exceeded with reference to surplus reinsurance.
It allows the ceding insurer to effect other reinsurances in priority so that there is an additional treaty
which protects the net account only.
According to this clause, if the ceding insurer introduces any change in his business approach during
the currency of the contract, the consent of his reinsurers is necessary to ensure continuance of the
reinsurance agreement.
According to this clause, premium is to be paid to the reinsurer at the same rate as received by the
ceding insurer.

WRONG ANSWER

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CORRET ANSWER:
It states in what circumstances a recovery is available to the ceding insurer and the extent of that
recovery.
Explanation:

This clause states in what circumstances a recovery is available to the ceding insurer and the
extent of that recovery.

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 previously
agreed threshold limit, also called the ‘deductible’.

Q 47. Identify the correct statement with regards to ‘Excess of loss treaty’.
It enables direct insurers to practice prudent underwriting
It is a treaty where the amount reinsured is expressed as being between a minimum (say 20%) and
maximum (say 80%) quota share.
It can be placed in weak reinsurance market conditions and is therefore not adequate to be relied
upon for primary reinsurance capacity
It is only useful in widely dispersed risks such as in agriculture exposed to pest damage
In this treaty, the lower layer is rated on exposure while the higher layers tend to be rated on the
extent of cover provided

WRONG ANSWER

CORRET ANSWER:
In this treaty, the lower layer is rated on exposure while the higher layers tend to be rated on the extent
of cover provided
Explanation:

Both working and catastrophe covers arranged on a layered basis provide reinsurance protection to
the retained business and enable cost reduction in using less of proportional arrangements.

The lower layer is rated on exposure while the higher layers tend to be rated on the extent of cover
provided.

Q 48. Which of the following unbundle risks and pass the risks from parties not willing to take the risk
to parties more willing to take the risks?
Derivatives
Bonds
Equities
Securitisation
Mutual funds

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WRONG ANSWER

CORRET ANSWER:
Derivatives
Explanation:

Derivatives unbundle risks and pass the risks from parties not willing to take the risk to parties
more willing to take the risks.

Q 49. The principle which calls for the disclosure by the reinsured to the reinsurer of every material
fact relating to the risk to be insured is___________.
Principle of indemnity
Subject matter of reinsurance contract
Doctrine of good faith
Principle of subrogation
Principle of insurable interest

WRONG ANSWER

CORRET ANSWER:
Doctrine of good faith
Explanation:

The doctrine of good faith is of universal application as much to reinsurance as to direct insurance.
It calls for the disclosure by the reinsured to the reinsurer of every material fact relating to the risk
to be insured.

Q 50. Which 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? 1. There is no such reinsurance 2.
Facultative reinsurance 3. Facultative obligatory treaty reinsurance
Only 1
1 and 2
Only 3
Only 2
1,2 and 3

CORRECT ANSWER
Explanation:

Facultative Obligatory treaty 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.

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Q 51. Which are the principles of reinsurance from below list? 1. There must be insurable interest 2.
The contract is one of the utmost good faith 3. The reinsurance contract is one of indemnity (even
though this may not necessarily apply to the original insurance contract)
Only 1
Only 2
1 and 2
1 and 3
1,2 and 3

CORRECT ANSWER
Explanation:

Principles of reinsurance are:

There must be insurable interest.

The contract is one of the utmost good faith (uberimae fide)
The reinsurance contract is one of indemnity (though this may not necessarily apply to the
original insurance contract.)
The subject matter of the contract must be in existence at the time the contract is made.

Q 52. Recognize the correct statement from the following: 1. Reinsurers on the higher surpluses and on
the facultative reinsurance examine the adequacy of rate levels 2. Reinsurers on the first surplus
treaties rarely spend time investigating the original business rate levels 3. Reinsurers on the
second surplus treaties rarely spend time investigating the original business rate levels
Only 1
1 and 2
Only 3
2 and 3
1,2 and 3

CORRECT ANSWER
Explanation:

While reinsurers on the first surplus and often on the second surplus treaties rarely spend time
investigating the original business rate levels, reinsurers on the higher surpluses and on the
facultative reinsurance examine the adequacy of rate levels.

Q 53. The premiums, in marine proportional reinsurance business are usually shown as net of the
following: 1. Agency commission 2. Acquisition costs 1. Brokerage
Only 1
Only 2
1 and 2

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2 and 3
1,2 and 3

CORRECT ANSWER
Explanation:

The accounts for this type of business are normally rendered on an “Underwriting Year” basis. The
premiums are usually shown net of acquisition costs, agency commission, brokerage and any
discount allowed to the insurer.

Hence, the reinsurance commission will cover only the ceding insurer’s expenses. This is usually
termed as overriding commission.

Q 54. What are used to reduce the insurer’s loss in respect of a single risk?
IBNR losses
Retention per risk
Premium for XL cover
Mindip
Retention per event

CORRECT ANSWER
Explanation:

Retention Per Risk are used to reduce the insurer’s loss in respect of a single risk.

For this reason, the retention under the excess of loss will be fixed at an amount less than the
amount which they accept for their net account on any one risk under proportional reinsurance
arrangement.

Q 55. Which of the following factors is/are relevant for analyzing exposure to various perils, in a
reinsurance programme design? 1. Frequency and size of losses 2. Geographical location of
exposures 3. Risk based capital
1 and 2
2 and 3
Only 2
Only 3
1,2 and 3

WRONG ANSWER

CORRET ANSWER:
Only 2
Explanation:

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One of the other important factors in reinsurance programme design is:

Geographical location of operations relevant to Analysing exposure to various perils.

Q 56. What were the main objectives of GIC which became the Indian Reinsurer, post nationalization?
1. To minimize the drain of foreign exchange 2. To maximize aggregate domestic retention 3. To
use the large premium base of the domestic market to secure best terms consistent with the
quality of business ceded out of the country
Only 1
Only 2
Only 3
2 and 3
1,2 and 3

CORRECT ANSWER
Explanation:

Post nationalisation, GIC became the Indian reinsurer and the outward reinsurance arrangements of
the Indian insurance companies were rearranged.

The main objectives were to maximise aggregate domestic retention, to use the large premium base
of the domestic market to secure best terms consistent with the quality of business ceded out of the
country and to minimize the drain of foreign exchange.

Q 57. Judge the correct statement from below, regarding ‘Net retained lines clause’?
This clause states in what circumstances a recovery is available to the ceding insurer and the extent
of that recovery
This clause intends that reinsurance will apply simultaneously and automatically with that of the
ceding insurer as soon as his retention is exceeded with reference to surplus reinsurance
The reinsurer follows his ceding insurer in his original contract of insurance with his insured
Premium is to be paid to the reinsurer at the same rate as received by the ceding insurer
This is 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

WRONG ANSWER

CORRET ANSWER:
This is 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
Explanation:

Net retained lines: This is 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 e.g., where the

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treaty operates after proportional treaty or facultative cessions. The insolvency clause usually
forms a part of this clause.

Q 58. Which of the following statements are correct? 1. Review of acceptances is to be done periodically
and, in any case, at least one major review must be done in a year. 2. The primary insurer must
make available his books of account for inspection by the reinsurer. 3. The review must be done
after the notice period, that is, if a treaty provides for notice of cancellation to be given on 30th
June, the review would need to be conducted in July.
Only 1
Only 2
1 and 2
2 and 3
1, 2 and 3

CORRECT ANSWER
Explanation:

An accurate and efficient information system helps in increasing credibility of the primary insurer
and helps in renewal of treaties. The primary insurer must make available his books of account for
inspection by the reinsurer. Review of acceptances is to be done periodically and, in any case, at
least one major review must be done in a year.

The review must be done well in advance of the notice period, that is, if a treaty provides for notice
of cancellation to be given by 30th September, the review would need to be conducted in July-
August, with the up-dated accounts based information.

Q 59. Which of the following statements is correct with regards to claims? 1. All reinsurers
participating in reinsurance do not share the respective losses 2. The reinsured can collect the
whole loss from only one reinsurer 3. A claim falling within the scope of the treaty will be
calculated subject to the provisions of the ultimate net loss clause which are applicable.
1 and 2
2 and 3
Only 3
Only 1
1,2 and 3

CORRECT ANSWER
Explanation:

A claim falling within the scope of the treaty will be calculated subject to the provisions of the
ultimate net loss clause which are applicable. All reinsurers participating bear their respective
share. The reinsured cannot collect the whole loss from one reinsurer.

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Q 60. Which of the following statements is correct with regards to insurer’s assets and capital on
retention? 1. The retention is assessed in the light of the need to preserve the asset base and the
need to generate adequate profit. 2. The insurer has to decide as to what percentage of its free
assets is it willing or can afford to lose in any one year. 3. The owner’s assets are inevitably high at
the start of business.
1,2 and 3
1 and 3
2 and 3
1 and 2
Only 3

CORRECT ANSWER
Explanation:

The owner’s assets are inevitably low at the time of commencement of business and builds up over
time.

The retention therefore is assessed in the light of the need to preserve the asset base and the need
to generate adequate profit. The insurer has to decide as to what percentage of its free assets is it
willing or can afford to lose in any one year.

Q 61. Choose the correct statement/s from below: 1. Retrocession from ceding to GIC Re and the Pools
are mandatory inward reinsurance to insurers in India 2. As per IRDAI Regulations, only non-
life insurers in India can write inward reinsurance business from other domestic insurers and
from overseas 3. As per IRDAI regulations, the insurer needs to ensure that decisions on
acceptance of reinsurance business are made by persons with necessary knowledge and
experience
Only 1
Only 2
1 and 2
1,2 and 3
1 and 3

CORRECT ANSWER
Explanation:

As per IRDA Regulations all life and non-life insurers in India can write inward reinsurance business
from other domestic insurers and from overseas.

The insurer needs to ensure that decisions on acceptance of reinsurance business are made by
persons with necessary knowledge and experience.

The insurer is also required to file any changes to the note as and when a change in underwriting
policy is made. Retrocession from ceding to GIC Re and the Pools are mandatory inward
reinsurance to insurers in India.

Q 62. What does both working and catastrophe covers arranged on a layered basis provide? 1.
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Unbalanced form of risk 2. Reinsurance protection to the retained business 3. Cost reduction in
using less of proportional arrangements
1, 2 and 3
Only 2
2 and 3
Only 1
1 and 2

WRONG ANSWER

CORRET ANSWER:
2 and 3
Explanation:

Both working and catastrophe covers arranged on a layered basis provide reinsurance protection to
the retained business and enable cost reduction in using less of proportional arrangements.

The lower layer is rated on exposure while the higher layers tend to be rated on the extent of cover
provided.

Q 63. The time zone is specified on the basis of _____________, in case of catastrophe treaty. 1. Time
zone of reinsurer 2. Standard time 3. Time zone of reinsured
1,2 and 3
Only 3
Only 2
2 and 3
1 and 2

WRONG ANSWER

CORRET ANSWER:
Only 3
Explanation:

As the contract addresses cover for loss it is important to specify Hour and Time zone. For
catastrophe treaty use time zone of reinsured and for others, “standard time”.

Contract terms would include date of commencement and date of termination.

Q 64. Which of the below mentioned entity assists in the tasks of protecting the low middle class and
poor people through assisting their respective governments in setting up and operating
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catastrophe insurance programmes?

F.A.I.R
WTO
World Bank
UNCTAD
Lloyd’s syndicate

WRONG ANSWER

CORRET ANSWER:
World Bank
Explanation:

World Bank as a concerned global citizen with the objective of alleviation of poverty, assists in the
tasks of protecting the low middle class and poor people through assisting their respective
governments in setting up and operating catastrophe insurance programmes.

Q 65. The retention limit for ABC Ltd. (an insurance company) is fixed at Rs. 10 Lakh for property
insurance. Calculate the ‘Surplus Reinsurance’ if the company received a claim of Rs. 1 cr.
90%
10%
Nil
50%
100%

WRONG ANSWER

CORRET ANSWER:
90%
Explanation:

In surplus reinsurance, the original insurer i.e., the ceding insurer decides what part of the original
insurance he wishes to retain for his own account and reinsures (cedes) the balance with a
reinsurer.

In the above example:

Claim received = Rs. 1,00,00,000/-

Retention Limit of ABC Ltd = Rs. 10,00,000/-

Therefore, Surplus Reinsurance = Rs. 90,00,000/- which is 90% of the claim received.

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Q 66. Determine the examples of reinsurance statistics required by managements for effective control.
1. Broker wise statistics 2. Treaty wise quarterly statistics 3. Country wise statistics
1 and 2
Only 3
2 and 3
Only 1
1,2 and 3

CORRECT ANSWER
Explanation:

Some examples of reinsurance statistics required by managements for effective control are:

i. Treaty wise quarterly statistics

ii. Broker wise statistics

iii. Country wise statistics

etc etc

Q 67. Which of the following statements is true with regards to the credit rating methodology? 1. The
credit rating process is specific to a specific policy or contract 2. It involves an examination of the
insurer’s investment portfolio, investment goals, asset quality and liquidity traits, all of which will
enable the rater to come to a conclusion about the risk profile of the portfolio 3. The rating
process throws light on the insurance companies pricing strategies, hedging operations, asset-
liability management and exposure to reinsurance
2 and 3
Only 1
1,2 and 3
Only 2
1 and 2

WRONG ANSWER

CORRET ANSWER:
2 and 3
Explanation:

The credit rating methodology used involves an examination of the insurer’s investment portfolio,
investment goals, asset quality and liquidity traits, all of which will enable the rater to come to a
conclusion about the risk profile of the portfolio.

The rating process will not be specific to any specific policy or contract. The rating process throws
light on the insurance companies’ pricing strategies, operations, asset-liability management and
exposure to reinsurance.
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Q 68. Choose the correct statement with regards to Errors and omissions clause. 1. It expects immediate
rectification and nothing in the clause would operate to increase the liability of the reinsurers
beyond agreed limits. 2. It is designed to protect the ceding insurer against any inadvertent
delays, errors or omissions. 3. It intent to give the reinsurer the right to inspect any book or
record of the ceding insurer which are relevant to the business reinsured.
2 and 3
Only 1
1, 2 and 3
1 and 2
Only 3

WRONG ANSWER

CORRET ANSWER:
1 and 2
Explanation:

Errors and omission clause is designed to protect the ceding insurer against any inadvertent
delays, errors or omissions.

The clause expects immediate rectification and nothing in the clause would operate to increase the
liability of the reinsurers beyond agreed limits.

Q 69. The slip is followed by a broker`s cover note to evidence the _______________________. 1.
Placement of cover 2. Protection of cover 3. Terms of cover
Only 1
Only 2
1 and 2
2 and 3
1,2 and 3

CORRECT ANSWER
Explanation:

The slip is followed by a broker`s cover note to evidence the placement, protection and terms of
cover.

In case of direct reinsurance, the reinsurer provides the cover note with similar information.

It is usual in practice to note the slip form used as both cover note and wordings in the case of lines
of insurance where a measure of standardization is achieved.

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Q 70. An organization can internally connect all its executives and offices through a private internet
arrangement. What term is used for such arrangement?
Wi-Fi
Extranet
Internet
Intranet
Digital Nervous System

WRONG ANSWER

CORRET ANSWER:
Intranet
Explanation:

An organization can internally connect all its executives and offices through a private internet
arrangement which is called intranet.

While it will be possible to access the public internet through an intranet freely it is not possible to
access an intranet facility except through password restricted access.

Q 71. The intermediary issues a cover note, as per market practice, summarizing the following: 1.
Premium 2. The participating underwriters with their shares set opposite their names 3. The
terms of placement
1 and 2
2 and 3
1,2 and 3
Only 1
Only 3

CORRECT ANSWER
Explanation:

As per market practice the intermediary issues a cover note summarizing:

1. The terms of placement,

2. Premium and
3. the participating underwriters with their shares set opposite their names.

The intermediary takes responsibility to collect premium and distribute to the underwriters. He also
takes responsibility to handle claims recoveries for the insurer.

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Q 72. Name the instruments used for hedging risk. 1. Options 2. Futures 3. Forwards
1 and 2
Only 1
Only 3
2 and 3
1,2 and 3

WRONG ANSWER

CORRET ANSWER:
2 and 3
Explanation:

Futures and forwards are agreements where two parties agree to a specified trade in future at a
specified time.

These enable the two parties to agreement to lock in a price to a future transaction. Thus, these are
instruments for hedging risk.

Q 73. Australia is known to be a high-risk zone due to ___________. 1. Tornadoes 2. Storms 3. Bush fire
1,2 and 3
Only 3
1 and 2
Only 1
2 and 3

CORRECT ANSWER
Explanation:

Australia is an example of an area that is categorised as high risk due to frequency occurrence of
bush fires.

Q 74. In which reinsurance business, the underwriter needs to have an intimate knowledge of tariffs
and other market conditions from which the business emanates?
Treaty
Facultative and Treaty
Facultative
Non proportional
Proportional

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WRONG ANSWER

CORRET ANSWER:
Facultative
Explanation:

In facultative reinsurance business, amount of premium involved is comparatively small and the
underwriter will need to have an intimate knowledge of tariffs and other market conditions from
which the business emanates and, in this respect, it is similar to direct insurance.

Q 75. Which of the following is a method of reinsuring risks on an individual basis where the insurer
has no obligation to cede a risk from an original insured and the reinsurer has the option of
accepting or declining each proposal? 1. Portfolio reinsurance 2. Facultative reinsurance 3. Treaty
reinsurance
1,2 and 3
1 and 2
Only 1
Only 2
Only 3

CORRECT ANSWER
Explanation:

Facultative Reinsurance is a method of reinsuring risks on an individual basis where the insurer has
no obligation to cede a risk from an original insured and the reinsurer has the option of accepting or
declining each proposal.

Q 76. Which clause expects immediate rectification and nothing in the clause would operate to increase
the liability of the reinsurers beyond agreed limits?
Arbitration
Set-off clause
Operative
Alterations
Errors and omissions

WRONG ANSWER

CORRET ANSWER:
Errors and omissions
Explanation:

Errors & omissions: A safety device

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This clause is designed to protect the ceding insurer against any inadvertent delays, errors or
omissions. The clause expects immediate rectification and nothing in the clause would operate to
increase the liability of the reinsurers beyond agreed limits.

Q 77. Which of the following statement/s is the correct statement regarding WTO? 1. India is a
signatory of the WTO 2. China is a member of WTO 3. The World Trade Organisation (WTO)
actively promotes free trade in services
1 and 2
1 and 3
only 2
only 1
1,2 and 3

CORRECT ANSWER
Explanation:

The World Trade Organisation (WTO) has been actively promoting free trade in services. Free trade
and globalising trade in services is an important objective of this world body with a view to
promoting expanding market opportunities in the long term.

India is a signatory to the WTO. China is a member of the WTO and privatized its market.

Q 78. The Retrocession shares to be allocated to the members are fixed _____________, in F.A.I.R
Reinsurance pool. 1. Every Year 2. Every Quarter 3. Every Month
Only 1
Only 3
1 and 2
2 and 3
1, 2 and 3

WRONG ANSWER

CORRET ANSWER:
Only 1
Explanation:

The Federation of Afro-Asian Insurers & Reinsurers (F.A.I.R.) set up the F.A.I.R Non-Life
Reinsurance Pool with effect from 1.1.1974. The principal object of the Pool is to accept reinsurance
and retrocession business from the African and Asian markets.

The Retrocession shares to be allocated to the members are fixed every year.

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Q 79. _______________ clause is usually included in a reinsurance agreement whereby it is stated that
the loss to the reinsurer will not be increased due to the inability of the ceding insurer to collect
from another reinsurer.
Errors and Omissions
Commencement and termination
Insolvency of other reinsurers
Operative clause
Alterations

CORRECT ANSWER
Explanation:

Insolvency of other reinsurers clause is usually included in a reinsurance agreement whereby it is

stated that the loss to the reinsurer will not be increased due to the inability of the ceding insurer to
collect from another reinsurer.

Q 80. Marine hull reinsurance is generally classified under ___________________. 1. OBOS 2. Ocean
going vessels 3. Local crafts
1,2 and 3
1 and 2
2 and 3
Only 1
Only 2

CORRECT ANSWER
Explanation:

Marine hull insurance portfolios of most insurers in the developing countries are very much
unbalanced.

Hull insurance falls into two broad categories, viz.

a) Ocean-going vessels, including bulk carriers, tankers and OBOS; and

b) Local crafts such as barges, lighters, launches, tugs, dredgers, trawlers etc.

Q 81. The magnitude of an earthquake is measured on the ______________.

Richter scale
Beufort scale
Moment magnitude scale
Modified magnitude scale
None of the above

CORRECT ANSWER
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Explanation:

The magnitude of an earthquake is measured on the Richter scale.

Q 82. Who among the following are generally referred to as ‘bankers to the insurance industry’?
Captive companies
Reinsurers
WTO
Lloyd’s of London
Insurers

WRONG ANSWER

CORRET ANSWER:
Reinsurers
Explanation:

Reinsurers are generally referred to as ‘bankers to the insurance industry’.

Although, technically a secondary market in insurance risk, reinsurers are often referred as "the
bankers to the insurance industry" because of the way in which their services can operate more as
a means of finance than as a simple transfer of risk.

Q 83. For which of the following type of business will the accounting be rendered on an ‘Accounts Year’
basis?
Fire and accident proportional reinsurance
Fire and accident non proportional reinsurance
Marine proportional reinsurance
Marine non proportional basis
All of the above

CORRECT ANSWER
Explanation:
For fire and accident proportional reinsurance, the accounting is rendered on an ‘Accounts Year’
basis.

Q 84. ____________refers to the professional management of investments such as stocks and bonds
along with real estate, set realistic goals to increase the insurer`s / reinsurer`s wealth and measure
the performance.
Risk Retention financing
Self insurance
Captive
Asset management
Reinsurance

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WRONG ANSWER

CORRET ANSWER:
Asset management
Explanation:
Asset management refers to the professional management of investments such as stocks and
bonds along with real estate, set realistic goals to increase the insurer`s / reinsurer`s wealth and
measure the performance.

Q 85. Which of the following is correct with respect to market pool?

Market pools can be very useful where each member is ceding similar portfolio of risks to the pool.
In market pool the ceding insurer cannot get further retention on his own risks through the pool.
Market pool may be protected by suitable surplus share covers and redistributed back to the
members.
In market pool, each insurer keeps his own net retention and thereafter cedes to the pool on priority
basis up to defined limits.
None of the above

CORRECT ANSWER
Explanation:
In market pool, each insurer keeps his own net retention and thereafter cedes to the pool on priority
basis up to defined limits.

Q 86. ____________ is the amount of the ceding insurer`s loss which is eligible for recovery under the
terms of an excess of loss treaty.
Gross loss
Net retained loss
Ultimate net loss
Ground up loss
Ultimate gross loss

CORRECT ANSWER
Explanation:
Ultimate net loss is the amount of the ceding insurer`s loss which is eligible for recovery under the
terms of an excess of loss treaty.
This clause follows the Net Retained Lines clause. A specific provision within this clause allows
claims to be settled to the ceding insurer before all recoveries have been made and the Ultimate Net
Loss is finally determined.

Q 87. In which of the following reinsurance contracts does the ceding insurer have the option to cede
and the reinsurer have the option to accept a specific risk of a specific insured?
Facultative obligatory treaty
Treaty reinsurance
Retrocession
Facultative
All of the above

CORRECT ANSWER
Explanation:
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In a facultative reinsurance contract, the ceding insurer has the option to cede and the reinsurer has
the option to accept a specific risk of a specific insured.

Q 88. The anticipated incurred loss ratio to the gross and net accounts in a class are very good indices
for measuring the effect of the programme on retentions. Which of the following is true in the
context of gross direct account?
In bad years the gross direct account will be relatively higher and generate losses for reinsurers.
In good years the gross direct account will be relatively less and generate revenue for reinsurers.
The gross direct account is expected to be subject to as wide a variation as the exposures permit.
The gross direct account is expected to sustain its loss ratio over a period of time.
None of the above

WRONG ANSWER

CORRET ANSWER:
The gross direct account is expected to be subject to as wide a variation as the exposures permit.
Explanation:
The gross direct account is expected to be subject to as wide a variation as the exposures permit.

Q 89. Which of the following formulae is correct?

Loss ratio = (Earned premiums/Incurred losses) x100
Loss ratio = (Incurred losses/Incoming premiums) x100
Loss ratio = (Incurred losses/Outgoing premium reserve) x100
Loss ratio = (Incurred losses/Earned premiums) x100
None of the above

CORRECT ANSWER
Explanation:

The correct formulae is :

Loss ratio = (Incurred losses/Earned premiums) x100

Q 90. _____________ 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.
Cover notes
Slips
Treaty wordings
Reinsurance contracts
Indian stamps

CORRECT ANSWER
Explanation:
Treaty wordings 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

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parties.

Q 91. In which of the following reinsurance commission methods will the commission payable be
determined by applying the agreed percentage of commission to the premiums ceded less returns
and cancellation?
Profit rate of commission
Flat rate of commission
Sliding Scale of commission
Overriding commission
Profit commission

CORRECT ANSWER
Explanation:
In Flat rate of commission method, the commission payable is determined by applying the agreed
percentage of commission to the premiums ceded less returns and cancellation.

Q 92. The practice of reciprocal reinsurance trading is more often used in the case of __________
business.
Fire insurance
Life insurance
Aviation insurance
Accident/liability insurance
Marine Insurance

WRONG ANSWER

CORRET ANSWER:
Fire insurance
Explanation:
The practice of reciprocal reinsurance trading is more often used in case of fire insurance business.

Q 93. F.A. I. R. Stands for _______.

Federation of Afro-Asian Insurer’s and Reinsurers
Federation of Asian-American Insurer’s and Reinsurers
Federation of Afro-Australian Insurer’s and Reinsurers
Federation of Asian-Australian Insurer’s and Reinsurers
None of the above

CORRECT ANSWER
Explanation:

F.A. I. R. Stands for Federation of Afro-Asian Insurers and Reinsurers.

Q 94. Which of the following is correct with respect to facultative reinsurance?

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Ceding insurer does not have the option to cede in facultative reinsurance
Ceding insurer has the option to cede in a facultative reinsurance
Reinsurer does not have the option to accept facultative reinsurance
Reinsurer does not have the option to decline risk of insurance company.
None of the above

CORRECT ANSWER
Explanation:

Ceding insurer has the option to cede in a facultative reinsurance.

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 accept a specific risk of a specific insured”.

Q 95. _____________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
Finite risk
Contingent capital
Financial reinsurance
Multi-trigger cover
Insurance

CORRECT ANSWER
Explanation:
Financial reinsurance 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.

Q 96. ____________ is an additional percentage payable to a ceding insurer on profitable treaties in

accordance with an agreed formula.
Overriding commission
Brokerage
Profit commission
Flat rate commission
None of the above

WRONG ANSWER

CORRET ANSWER:
Profit commission
Explanation:
Profit commission is an additional percentage payable to a ceding insurer on profitable treaties in
accordance with an agreed formula.

Q 97. ________________ is a method that mitigates the impact of an unbearable net loss ratio.
Excess of loss- Working (per risk)
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Aggregate excess of loss

Stop loss
Excess of loss-catastrophe
Excess of loss

CORRECT ANSWER
Explanation:

Stop loss is a method that mitigates the impact of an unbearable net loss ratio.

Q 98. What is the obligation of a reinsurer when the ceding insurer is in financial difficulties or is
insolvent?
Reinsurer shares commercial fate, hence reinsurer will have to pay his full share of the same loss
Reinsurer shares insurance fate, hence reinsurer will not have to pay his share of the same loss
Reinsurer shares commercial fate, hence reinsurer will not have to pay his full share of the same loss
Reinsurer shares insurance fate, hence reinsurer will have to pay his full share of the same loss
None of the above

CORRECT ANSWER
Explanation:
In case the ceding insurer is in financial difficulties or is insolvent, the reinsurer shares insurance
fate, hence reinsurer will have to pay his full share of the same loss.

Q 99. Who developed a rating system known as the Insurance Regulatory Information System (IRIS)?
Standard and Poor
NAIC
A.M. Best
Duff & Phelps
IRDA

CORRECT ANSWER
Explanation:
The National Association of Insurance Commissioners in USA (NAIC), an insurance regulatory body,
has developed its own rating system known as Insurance Regulatory Information System (IRIS) to
provide for an integrated approach to monitoring and analyzing the financial health of insurers and
reinsurers.

Q As per market practice, the intermediary issues a cover note to the insurer. Which of the
100.
following is not included in it?
Terms of placement
Premium
Claim recoveries
Participating underwriters with their shares set opposite their names.
All of the above

CORRECT ANSWER
Explanation:

Claim recoveries information is not included in the cover note.

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Out of 100 questions 59 correct, 38 wrong and 3 un attempted.

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Q 1. In reinsurance business, captive companies have mostly settled down in ______________. 1. Tax
haven countries 2. London 3. United states
Only 1
Only 2
1 and 2
2 and 3
1,2 and 3

UnAttempted

CORRECT ANSWER:

Only 1

Explanation:

A number of captive companies have broadened their sphere of activities to the writing of open
market insurance or reinsurance business for tax reasons.

The captive companies are very often established in “tax havens” to avoid tax-liability in the
country of incorporation of the parent organization.

Q 2. Choose the correct statement regarding Financial reinsurance. 1. Financial reinsurance is a

reinsurance with limited potential for profit and losses 2. The primary objective of Financial
reinsurance is to strive for risk equalization over time and to stabilize the ceding insurer’s balance
sheet 3. Financial reinsurance 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 his financial position
1,2 and 3
2 and 3
Only 1
1 and 2
Only 3

UnAttempted

CORRECT ANSWER:

1,2 and 3

Explanation:

Financial reinsurance is a reinsurance with limited potential for profits and losses; the primary
objective is to strive for risk equalization over time and to stabilize the ceding insurer`s balance
sheet.

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Financial reinsurance 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 his financial position.

Q 3. Recognize the true statement: 1. Investment in stock market decreases the Cost of administration
and Exposure to capital loss 2. Stock market investments are used to leverage capital gain for a
better return from the investment portfolio 3. Investments of a long-term nature increases
liquidity
1,2 and 3
1 and 3
Only 2
1 and 2
2 and 3

UnAttempted

CORRECT ANSWER:

Only 2

Explanation:

Long term investments are likely to yield higher interest but such an arrangement would mean
illiquid asset or loss of higher interest due to premature closure.

Investment in the stock market increases the:

1) Cost of administration and

2) Exposure to capital loss

But at the same time investors can earn higher return depending on their risk-taking ability. Given
this characteristic, stock market investments are used to leverage capital gain for a better return
from the investment portfolio.

Q 4. What is the relevance of size and structure of portfolio in reinsurance programme design?
Discover cash flow produced by business
Relation between largest risk and catastrophe exposures accepted by insurers on a gross and net
basis to judge financial effects on insurer’s capital base
Decision making on what type of reinsurance arrangements are most suitable
Examine exposure to various perils
Financial strength of the insurer

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UnAttempted

CORRECT ANSWER:

Decision making on what type of reinsurance arrangements are most suitable

Explanation:

The relevance to the factor Size & structure of the portfolio in reinsurance programme design is,
‘Decision making on what type of reinsurance arrangements are most suitable’.

Q 5. Some of the statements required to be submitted periodically by insurers to Reserve Bank of

India are: 1. Annual statements giving particulars of reinsurance business done with non-
residents 2. Quarterly statements of foreign currency accounts maintained abroad 3. Quarterly
statements of remittances made and remittances received
Only 1
Only 2Only 2
2 and 3
1 and 2
1,2 and 3

UnAttempted

CORRECT ANSWER:

1,2 and 3

Explanation:

Some of the statements required to be submitted periodically to Reserve Bank of India are:

quarterly statements of foreign currency accounts maintained abroad;

quarterly statements of remittances made and remittances received;
annual statements giving particulars of reinsurance business done with non-residents.

Q 6. Select from below the correct options regarding, Foreign direct investment (FDI) promoted by
MIGA in developing countries. 1. It does this by promoting free trade services 2. It does this by
providing political risk insurance for foreign investments in developing countries 3. It does this by
providing dispute resolution services for guaranteed investments to prevent disruptions to
developmentally beneficial projects
Only 1
Only 2
1 and 2
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2 and 3
1,2 and 3

UnAttempted

CORRECT ANSWER:

2 and 3

Explanation:

Concerns about investment environments and perceptions of political risk often inhibit foreign
direct investment, with the majority of flows going to just a handful of countries and leaving the
world's poorest economies largely ignored.

MIGA addresses these concerns by providing political risk insurance for foreign investments in
developing countries and dispute resolution services for guaranteed investments to prevent
disruptions to developmentally beneficial projects.

Q 7. Identify from below the one included under local crafts, in marine hull reinsurance. 1. Launches
2. tankers 3. Tugs
1 and 3
Only 1
Only 3
1 and 2
2 and 3

UnAttempted

CORRECT ANSWER:

1 and 3

Explanation:

Marine hull insurance portfolios of most insurers in the developing countries are very much
unbalanced. Hull insurance falls into two broad categories, viz.

a) Ocean-going vessels, including bulk carriers, tankers and OBOS; and

b) Local crafts such as barges, lighters, launches, tugs, dredgers, trawlers etc.

Q 8. On which basis the Accounts for Fire proportional reinsurance business are normally rendered
on? 1. Monthly basis 2. Underwriting year basis 3. Accounting year basis
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Only 3
Only 1
1 and 2
2 and 3
1,2 and 3

UnAttempted

CORRECT ANSWER:

Only 3

Explanation:

The accounts for Fire and Accident Proportional Reinsurance business are normally rendered on an
“Accounts Year” basis.

The premiums are usually shown at original gross rates and the reinsurance commission rate is
then applied.

Q 9. Which is the correct statement with regards to marine proportional reinsurance business? 1. The
accounts are normally rendered on an ‘Underwriting Year’ basis 2. The reinsurance commission
will cover only the ceding insurers expenses 3. Mostly the premiums are shown at original gross
rates and the reinsurance commission rate is then applied
1,2 and 3
1 and 3
Only 2
1 and 2
Only 1

UnAttempted

CORRECT ANSWER:

1 and 2

Explanation:

The accounts for this type of business are normally rendered on an “Underwriting Year” basis. The
premiums are usually shown net of acquisition costs, agency commission, brokerage and any
discount allowed to the insurer.

Hence, the reinsurance commission will cover only the ceding insurer’s expenses. This is usually
termed as overriding commission.

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Q 10. Which of the following costs are not included in the calculation of the claims’ costs? 1. Office cost
2. Salvage costs 3. Salaries of the employees
Only 1
Only 2
1 and 3
1 and 2
1,2 and 3

UnAttempted

CORRECT ANSWER:

1 and 3

Explanation:

Salaries of employees and office costs of the insurer, however, are not included in the calculation of
the claims’ costs. Recoveries from proportional reinsurers, salvage, subrogation and contribution
are deducted from the claims’ costs.

Q 11. Choose from below, the incorrect statement with regards to advantages of protection offered by
reinsurance.
An insurer has more capacity to accept though he needs to restrict exposure to a level commensurate
with his own net resources.
The net premiums and losses are stabilized over a shorter period of time.
The incidence of loss is widely distributed
The problem of accumulations within each line of business and between different lines is controlled.
An insurer can accept old tested risk exposures with reinsurance support.

UnAttempted

CORRECT ANSWER:

An insurer can accept old tested risk exposures with reinsurance support.

Explanation:

The advantages of the protection afforded by reinsurance can be summarized as under:

a) An insurer has more capacity to accept though he needs to restrict exposure to a level
commensurate with his own net resources.

b) The net premiums and losses are stabilized over a shorter period of time.

c) The incidence of loss is widely distributed

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d) The problem of accumulations within each line of business and between different lines is
controlled.

e) An insurer can accept new and untested risk exposures with reinsurance support

Q 12. Which of the following statement is correct regarding Net retained lines clause? 1. It allows the
ceding insurer to effect other reinsurances in priority so that there is an additional treaty which
protects the net account only 2. The insolvency clause usually forms a part of this clause 3. It will
normally be omitted where the treaty covers the reinsured’s gross account or where the cover
operates for common account
1,2 and 3
1 and 2
Only 1
Only 3
2 and 3

UnAttempted

CORRECT ANSWER:

1,2 and 3

Explanation:

Net retained lines is 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 e.g., where the treaty
operates after proportional treaty or facultative cessions.

The insolvency clause usually forms a part of this clause. The Net Retained Lines clause will
normally be omitted where the treaty covers the reinsured’s gross account or where the cover
operates for common account.

Q 13. Judge the true statement with regards to Set off clause.
It offers the reinsurer the right to inspect any book or record of the ceding insurer which are relevant
to the business reinsured.
It transfers all credit risk to reinsurers by providing that the ceding insurer’s payments to the
intermediary be deemed payments to the reinsurer.
It permits each party to net amounts due against those payable before making payment.
It exhibits the intention of the parties to resolve disputes as to the interpretation of the agreement or
the rights with respect to any transaction involved whether before or after termination of the agreement
by arbitration rather than resorting to direct court action.
It expects prompt action in correction and nothing in the clause would operate to increase the
liability of the reinsurers beyond agreed limits.
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UnAttempted

CORRECT ANSWER:

It permits each party to net amounts due against those payable before making payment.

Explanation:

Set off clause in reinsurance agreements permits each party to net amounts due against those
payable before making payment. This settlement method is especially important in the event of
insolvency of one party which stops to

remit amounts due to the other. This clause is often challenged by creditors and others interested in
maximizing the assets of the insolvent party.

Q 14. MIGA promotes foreign direct investment (FDI) into developing countries. It does this by
______________.
providing political risk insurance (guarantees) to the private sector
advocating theory of insulated and protected markets
assisting the respective governments in setting up and operating catastrophe insurance programmes
operating as regional pools supporting the countries in their respective regions
actively promoting free trade in services

UnAttempted

CORRECT ANSWER:

providing political risk insurance (guarantees) to the private sector

Explanation:

As a member of the World Bank Group, Multilateral Investment Guarantee Agency (MIGA) promotes
foreign direct investment (FDI) into developing countries to help support economic growth, reduce
poverty, and improve people's lives. It does this by providing political risk insurance (guarantees) to
the private sector.

Q 15. Identify from below, the true statement with regards to Flat rate of commission.
This 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
It is an item paid by the reinsurer to the ceding insurer and is expressed as a percentage of the
premium
This is a very easy to account as the commission payable is determined by applying the agreed
percentage of commission to the premiums ceded less returns and cancellation
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Where a reinsurer receives a share of a treaty via a broker, he will normally agree to pay flat rate of
commission
When a reinsurer receives business as an inward retrocession, the reinsurer will allow the ceding
insurer an additional commission over and above any share of the original commission that he may pay.
This is known as flat rate of commission

UnAttempted

CORRECT ANSWER:

It is an item paid by the reinsurer to the ceding insurer and is expressed as a percentage of the premium

Explanation:

Reinsurance commission is an item paid by the reinsurer to the ceding insurer and is expressed as
a percentage of the premium. The function of the reinsurance commission is to reimburse the
ceding insurer with pro-rata amount of what he has paid in acquiring the business - agency
commission and expense of management. The ceding insurer incurs considerable expenses in
obtaining his business.

Q 16. In order to have reinsurance protection based on needs of business, an insurer determines and
negotiates with reinsurer/s on the basis of following factors. 1. Rates 2. Terms 3. Conditions
Only 1
1,2 and 3
Only 2
1 and 2
2 and 3

UnAttempted

CORRECT ANSWER:

1,2 and 3

Explanation:

Based on needs of business an insurer determines and negotiates with reinsurer/s terms,
conditions and rates for reinsurance protection. This crystallises as a reinsurance contract.

Q 17. The basic statistics relating to a treaty are collected from the following.
Reports from Media
Accounts statements published
Accounts statements as sent and received
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Previous records
Reports published by IRDAI

UnAttempted

CORRECT ANSWER:

Accounts statements as sent and received

Explanation:

The basic statistics relating to a treaty are collated from accounts statements as sent and received.

Information can be processed from these basic statistics for any type of review requirement
considered as important including an assessment of cash flows.

Q 18. Choose the correct option regarding Risk Attaching basis method. 1.It is used to avoid the hazard
of the reinsurer cancelling a contract and leaving the insurer without cover for the duration of the
policies 2.Claims under policies issued or renewed during the contract period are covered no
matter in which year they may occur. 3.The reinsurer is not liable for losses occurring after the
contract ends, although the original policy may remain in force at termination.
Only 1
Only 2
1 and 2
2 and 3
1,2 and 3

UnAttempted

CORRECT ANSWER:

1 and 2

Explanation:

The “risk attaching” basis is used to avoid the hazard of the reinsurer cancelling a contract and
leaving the insurer without cover for the duration of the policies.

Under this method, claims under policies issued or renewed during the contract period are covered
no matter in which year they may occur. Thus, a claim may involve the previous contract or the
present one depending on the date on which the policy was issued.

Q 19. F.A.I.R operates the following: 1. Marine pool 2. Aviation pool 3. Oil & Energy Insurance

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Syndicate
Only 1
Only 2
1,2 and 3
1 and 2
2 and 3

UnAttempted

CORRECT ANSWER:

2 and 3

Explanation:

F.A.I.R operates an Aviation Pool and an Oil & Energy Insurance Syndicate, which has been officially
registered in the Kingdom of Bahrain as an independent legal entity. Its principal objective is to
underwrite oil and energy business from FAIR members.

Q 20. Which of the following statements is true with regards to Self-Insurance? 1. It can be a retained
level of deductible 2. It can be through a mutual group or pool within an association or body to
share retained risk 3. It can be a fund constituted to address a loss if it were to occur
Only 1
Only 3
2 and 3
1 and 2
1,2 and 3

UnAttempted

CORRECT ANSWER:

1,2 and 3

Explanation:

Self-insurance can be a retained level of deductible. This can be through a mutual group or pool
within an association or body to share retained risk. This can also be a fund constituted to address
a loss if it were to occur. The latter two approaches to self-insurance often do not find legal and / or
regulatory sanction in most countries.

Q 21. Choose the correct statement from below. 1. Investors can earn higher return depending on their
risk-taking ability, by investing in stock market. 2. Investments of a long-term nature are subject
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to illiquid asset or loss of higher interest due to premature closure but at the same time are likely
to yield higher interest. 3. Cost of administration and exposure to capital loss is high in case of
investment in stock market
1 and 3
2 and 3
1 and 2
1,2 and 3
Only 1

UnAttempted

CORRECT ANSWER:

1,2 and 3

Explanation:

Investments of a long-term nature are likely to yield higher interest but such an arrangement would
mean illiquid asset or loss of higher interest due to premature closure.

Investment in the stock market increases the Cost of administration and exposure to capital
loss but at the same time investors can earn higher return depending on their risk-taking ability.

Q 22. The Cologne Reinsurance Company which is the oldest professional reinsurer, is now merged
with _________.
The Mercantile and General
Munich Reinsurance Company
Swiss Reinsurance Company
Royal Chartered Insurance
Gen Re

UnAttempted

CORRECT ANSWER:

Gen Re

Explanation:

The Cologne Reinsurance Company was founded in 1846, though they did not start operations until
1852. They are the oldest professional reinsurer still in existence and now merged with Gen Re.

Q 23. A well rated insurer in a country would ________________ if the country’s sovereign rating is
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poor. 1. not be rated 2. be rated as strong 3. be rated as poor

Only 2
Only 3
1 and 3
2 and 3
1,2 and 3

UnAttempted

CORRECT ANSWER:

Only 3

Explanation:

It is an established convention that the individual insurer rating however good is subordinate to its
country`s rating. Hence a well rated insurer in a country would be poorly rated if the country`s
sovereign rating is poor.

Q 24. __________ is a contract to pay back to the insurer the negative balance in his business as pre-
agreed with the reinsurer.
Swaps
Loss portfolio transfer
Spread loss
Time and distance policy
Reinsurance

UnAttempted

CORRECT ANSWER:

Spread loss

Explanation:
Spread loss is a contract to pay back to the insurer negative balance in his business as pre-agreed
with the reinsurer.

Q 25. Which of the following clauses allows the reinsured to cancel the reinsurance contract and then
seek a new reinsurer if the reinsurer is downgraded by the rating organizations?
PML excess clause
Downgrade clause
Loss occurrence clause
Original conditions clause
None of the above

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UnAttempted

CORRECT ANSWER:

Downgrade clause

Explanation:
Downgrade clause allows the reinsured to cancel the reinsurance contract and then seek a new
reinsurer if the reinsurer is downgraded by the rating organizations.

Q 26. The ___________ clause states that premium is to be paid to the reinsurer at the same rate as
received by the ceding insurer.
Original conditions
Underwriting
Net retained lines
Ultimate net loss
None of the above

UnAttempted

CORRECT ANSWER:

Original conditions

Explanation:
Original conditions clause states that premium is to be paid to the reinsurer at the same rate as
received by the ceding insurer.

Q 27. Which of the following treaty can be placed in weak reinsurance market conditions?
Surplus treaty
Quota share treaty
Facultative obligatory treaty
Excess of loss treaty
Excess Treaty

UnAttempted

CORRECT ANSWER:

Facultative obligatory treaty

Explanation:
Facultative obligatory treaty can be placed in weak reinsurance market conditions.

Q 28. With the __________________ clause, the ceding insurer can make a provision for ‘termination
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without notice’ in the event of certain other circumstances stipulated in the contract.
Sudden death clause
Commencement and Termination clause
Downgrade clause
Operative clause
Termination clause

UnAttempted

CORRECT ANSWER:

Sudden death clause

Explanation:
With the Sudden death clause, ceding insurer can make a provision for ‘termination without notice’
in the event of certain other circumstances stipulated in the contract.

Q 29. In ________________ business, a mix of risks producing a broad based premium and giving a
good treaty balance, yielding fairly sustained positive results over a period of time is needed.
Reciprocal business
Risk booked business
Non risk booked business
Medium size business
Small size business

UnAttempted

CORRECT ANSWER:

Reciprocal business

Explanation:
In Reciprocal business, a mix of risks producing a broad based premium and giving a good treaty
balance, yielding fairly sustained positive results over a period of time is needed.

Q 30. In the Treaty, as a ‘document of agreement’, which of the following countries are normally
excluded while listing territorial scope?
South Africa
UK
Canada
Australia
All of the above

UnAttempted

CORRECT ANSWER:

Canada
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Explanation:
In the Treaty, as a ‘document of agreement’, Canada is usually excluded while listing territorial
scope because of the different laws and insurance practices prevailing in the country.

Q 31. Which of the following is issued by an intermediary after the issue of cover note?
FPR
Policy document
Claim document
KYC form
Identity proof

UnAttempted

CORRECT ANSWER:

Policy document

Explanation:
Once a cover note is issued by the intermediary, he has to issue a policy document.

Q 32. Standard Fire and special peril insurance is a principal class of _____________
Marine hull reinsurance
Aviation insurance
Marine insurance
Liability reinsurance
Property reinsurance

UnAttempted

CORRECT ANSWER:

Property reinsurance

Explanation:
Standard Fire and special peril insurance is a principal class of property reinsurance.

Q 33. Which type of retention is managed through reasonable estimation of financial consequences and
by allowing a catastrophe reserve for funds to accumulate and be available over the long term?
Per risk retention
Per event retention
Financial retention

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Capital retention
All of the above

UnAttempted

CORRECT ANSWER:

Per event retention

Explanation:
Per event retention is managed through reasonable estimation of financial consequences and by
allowing a catastrophe reserve for funds to accumulate and be available over the long term.

Q 34. An organization can internally connect all its executives and offices through a private internet
arrangement. What term is used for such arrangement?
World wide web
Extranet
Intranet
Internet
None of the above

UnAttempted

CORRECT ANSWER:

Intranet

Explanation:
An organization can internally connect all its executives and offices through a private internet
arrangement known as Intranet.

Q 35. What is the percentage of service tax that is levied on direct premium in India?
2%
3%
5%
7%
10%

UnAttempted

CORRECT ANSWER:

5%

Explanation:

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In India, a service tax of 5 % is levied on direct premium.

Q 36. If management sets high retention limit , then ____________

They may find they are ceding too large a part of their premium income to their reinsurers.
They may find they are ceding too small a part of their premium income to their reinsurers.
They expose themselves to retaining more when claims occur.
They expose themselves to retaining less when claims occur.
None of the above

UnAttempted

CORRECT ANSWER:

They expose themselves to retaining less when claims occur.

Explanation:
If management sets the retention limits as high, then they expose themselves to retaining more
when claims occur.

Q 37. Which of the following clauses is commonly found in all agreements and describes without any
ambiguity the business coming within the scope of a reinsurance contract?
Operative clause
Downgrade clause
Commencement and Termination clause
Sudden death clause
None of the above

UnAttempted

CORRECT ANSWER:

Operative clause

Explanation:
The operative clause is commonly found in all agreements and describes without any ambiguity the
business coming within the scope of a reinsurance contract.

Q 38. Which of the following is incorrect with respect to Lloyd’s Syndicate?

Each member of Lloyd’s Syndicate has unlimited liability.
Syndicates are supervised principally by the Committee of Lloyd’s
Syndicates are supervised principally by the Department of Trade.
Lloyd’s is a market and not an insurer
All of the above

UnAttempted

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CORRECT ANSWER:

Syndicates are supervised principally by the Committee of Lloyd’s

Explanation:

Lloyd’s Syndicates are arranged on an entirely different basis as compared to insurance and
reinsurance companies.

Each member of a Syndicate has unlimited liability and the Syndicates are supervised principally by
the Committee of Lloyd’s rather than the Department of Trade.

Q 39. In which of the following methods does the percentage of retained sum insured vary for different
limits of sums insured and reduce with increase in the limit of sum insured?
Proportional Reinsurance
Surplus Reinsurance
Quota share reinsurance
Variable quota share reinsurance
None of the above

UnAttempted

CORRECT ANSWER:

Variable quota share reinsurance

Explanation:
Variable quota share reinsurance is a method in which the percentage of the retained sum insured
varies for different limits of sums insured and reduces with increase in the limit of sum insured.

Q 40. The basic statistics relating to a treaty are collated from _____________ as sent and received.
Bank statements
Financial statements
Account statements
Actuarial data
Monthly Report

UnAttempted

CORRECT ANSWER:

Account statements

Explanation:
The basic statistics relating to a treaty are collated from account statements as sent and received.

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Q 41. Which of the following treaty is used mainly for small accounts where the extra administrative
burden of a surplus can be quite large?
Surplus treaty
Quota share treaty
Facultative treaty
Excess of loss treaty
Proportional treaty

UnAttempted

CORRECT ANSWER:

Quota share treaty

Explanation:
Quota share treaty is used mainly for small accounts where the extra administrative burden of a
surplus can be quite large.

Q 42. Which of the following is incorrect with respect to advantages of reinsurance?

An insurer has more capacity to accept though he needs to restrict exposure to a level commensurate
with his own net resources.
The incidence of loss gets widely distributed
An insurer cannot accept new and untested risk exposures with reinsurance
The net premiums and losses are stabilised over a shorter period of time
The problem of accumulation within each line of business and between different lines is controlled.

UnAttempted

CORRECT ANSWER:

An insurer cannot accept new and untested risk exposures with reinsurance

Explanation:
The advantages of the protection afforded by reinsurance can be summarized as under:
a) An insurer has more capacity to accept though he needs to restrict exposure to a level
commensurate with his own net resources.
b) The net premiums and losses are stabilized over a shorter period of time.
c) the incidence of loss is widely distributed
d) The problem of accumulations within each line of business and between different lines is
controlled.
e) an insurer can accept new and untested risk exposures with reinsurance support

Q 43. If an insurance company is put under ‘Credit Watch’, and is given a ‘positive’ designation, then
what would this mean for that insurance company?
Rating of Insurance Company can either be lowered or affirmed
Rating of Insurance Company can be affirmed
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Rating of Insurance Company can be lowered

Rating of Insurance Company can be raised
None of the above

UnAttempted

CORRECT ANSWER:

Rating of Insurance Company can be raised

Explanation:
If an insurance company is put under ‘Credit Watch’ and is given a ‘positive’ designation, then this
means that the rating of the insurance company can be raised.

Q 44. For which of the following reasons does ‘direct writing insurance companies’ start to write
inward reinsurance business?
To spend investment income, which is derived from cash flow resulting from inward acceptances
To obtain a better and wide spread of business by writing business from overseas
To achieve a lower income ratio by the maintenance of the volume of premium income
To increase payment of claim amount
None of the above

UnAttempted

CORRECT ANSWER:

To obtain a better and wide spread of business by writing business from overseas

Explanation:
One of the reasons due to which direct writing insurance companies start writing inward
reinsurance business is to obtain a better and wide spread of business by writing business from
overseas.

Q 45. In a credit rating agency, who among the following can take the decision regarding change of
rating of an insurer?
Credit Analyst
Professional rating committee
CEO
Members of rating agency
Directors of rating committee

UnAttempted

CORRECT ANSWER:

Professional rating committee

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Explanation:
In a credit rating agency, the professional rating committee can take the decision regarding change
of rating of an insurer.

Q 46. ____________ are the largest insurers of private motor vehicles in the UK.
UK motor’s underwriters
Lloyd’s motor underwriters
LRCCL
G IC Re
None of the above

UnAttempted

CORRECT ANSWER:

Lloyd’s motor underwriters

Explanation:
Lloyd’s motor underwriters are the largest insurers of private motor vehicles in the UK.

They are one of the most recognised throughout the world. One out of six cars in the UK is insured
at Lloyd’s. Retaining this premier position takes a combination of optimum service and innovation.

Q 47. For which of the following types of business will the accounting be rendered on an ‘Underwriting
Year’ basis?
Marine non proportional basis
Marine proportional reinsurance
Fire and accident non proportional reinsurance
Fire and accident proportional reinsurance
None of the above

UnAttempted

CORRECT ANSWER:

Marine proportional reinsurance

Explanation:
For marine proportional reinsurance, the accounting is rendered on an ‘Underwriting Year’ basis.

Q 48. Retention is a combination of the financial consequences of__________

Risk based losses
Risk and event based profits
Return and event based profits

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Return and event based losses

Risk and event based losses

UnAttempted

CORRECT ANSWER:

Risk and event based losses

Explanation:
Retention is a combination of the financial consequences of risk and event based losses.

Q 49. The ___________ clause allows the possibility of making amendments, consent of both the parties,
addendum forming integral part of and binding on the parties.
Access to records
Alterations
Errors and Ommissions
Arbitration
Intermediaries

UnAttempted

CORRECT ANSWER:

Alterations

Explanation:
The alterations clause allows the possibility of making amendments, consent of both the parties,
addendum forming integral part of and binding on the parties.

Q 50. SWIFT is an acronym for _______________.

Single Window International Facultative and Treaty
Single Window International Facility and Treaty
Single Window Indian Facility and Treaty
Single Window Indian Facultative and Treaty
None of the above

UnAttempted

CORRECT ANSWER:

Single Window International Facultative and Treaty

Explanation:

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SWIFT is an acronym for Single Window International Facultative and Treaty.

Out of 50 questions 50 are un attempted.

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Q 1.
Which of this arises when the actual premium awaits the outcome of the completion
of the treaty or contract period?
Cedant
Ground up loss
Cash loss
Deposit premium
Direct Written Premium

UnAttempted

CORRECT ANSWER:

Deposit premium

Explanation:

Deposit Premium: This arises when the actual premium awaits the outcome of the completion of
the treaty or contract period.

At inception the reinsurer therefore receives premium as a deposit subject to its adjustment on
completion of treaty or contract period.

Q 2.
Which of the following factors is important for decision making on retentions and
type of reinsurance arrangements, in a reinsurance programme design?
Investment policy
Frequency and size of losses
Geographical locations of operations
Management and claims handling capabilities
Reinsurance market conditions

UnAttempted

CORRECT ANSWER:

Frequency and size of losses

Explanation:

One of the important factors in reinsurance programme design is:

Frequency & size of losses which is relevant to Decision making on retentions & type of
reinsurance arrangements.

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Q 3.
Choose the correct statement with regards to Aggregate excess of loss reinsurance.
1. In Aggregate Excess of loss, the amount applies as a trigger for cover instead of
loss percentage/loss ratio. 2. Aggregate excess of loss cover is on the similar lines
as Excess of Loss Ratio reinsurance for a defined class of business. 3. Aggregate
excess of loss cover is expressed in percentages rather than amounts.
1,2 and 3
Only 1
1 and 2
2 and 3
Only 3

UnAttempted

CORRECT ANSWER:

1 and 2

Explanation:

Aggregate excess of loss cover is on the similar lines as Excess of Loss Ratio reinsurance for a
defined class of business but the cover parameters (i.e. the limit and deductible) are expressed
in amounts rather than percentages.

In Aggregate Excess of loss, the amount applies as a trigger for cover instead of loss
percentage / loss ratio.

Q 4.
Identify in which of the below mentioned agreements, two parties agree to a
specified trade in future at a specified time. 1. Options 2. Futures 3. Forwards
Only 3
1 and 2
Only 1
2 and 3
1,2 and 3

UnAttempted

CORRECT ANSWER:

2 and 3

Explanation:

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Futures and forwards are agreements where two parties agree to a specified trade in future at a
specified time.

Q 5.
The risk attaching method is used by : 1. Fire excess of contracts 2. Marine excess
of loss contracts 3. Aviation excess of loss contracts
Only 1
Only 2
2 and 3
1,2 and 3
1 and 2

UnAttempted

CORRECT ANSWER:

2 and 3

Explanation:

The “risk attaching” basis is used to avoid the hazard of the reinsurer cancelling a contract and
leaving the insurer without cover for the duration of the policies.

Marine and aviation excess of loss contracts, because of their nature to transact insurance on
the basis of underwriting year use “risk attaching” method.

Q 6.
Recognize the correct statement from the following: 1. In regard to outward treaties,
the copy to be retained in India is got stamped with special adhesive stamp for the
required amount, as applicable. 2. Inward treaty agreement from the foreign ceding
companies will require to be stamped in India. 3. Though the agreements are
normally received in duplicate, only the copy to be retained by the Indian reinsurer
is got stamped.
1 and 2
2 and 3
Only 1
Only 3
1,2 and 3

UnAttempted

CORRECT ANSWER:

1,2 and 3

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Explanation:

The Stamp Act 1899 further provides that every instrument chargeable with duty executed out of
India may be stamped within three months after it is received in India. Inward treaty agreement
from the foreign ceding companies will require to be stamped in India.

Though the agreements are normally received in duplicate, only the copy to be retained by the
Indian reinsurer is got stamped.

In regard to outward treaties, similar procedure is followed and the copy to be retained in India
is got stamped with special adhesive stamp for the required amount, as applicable.

Q 7.
Which 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 his financial position?
Contingent capital
Financial reinsurance
Risk retention
Multi - trigger cover
Finite risk

UnAttempted

CORRECT ANSWER:

Financial reinsurance

Explanation:

Financial reinsurance 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 his financial position.

Q 8.
Which one of the following is not applicable for people who are outside the insurer
and are interested in financial information?
People with whom the insurer deals or trade
Government regulatory bodies
Company employees
Taxation authorities
Creditors

UnAttempted

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CORRECT ANSWER:

Company employees

Explanation:

People who are interested in the financial information are:

a) Within the insurer - owners or shareholders, management and employees,

b) Outside the insurer - government regulatory bodies, taxation authorities, creditors, those with
whom the insurer deals or trades, etc.

c) Others such as financial analysts, trade associations and competitors.

Q 9.
Describe the risks which are covered by the reinsurance contract in the ‘Follow the
Fortunes’ clause. 1. Risks arising from the Insurer or the Reinsurer 2. Risks arising
from the Insured (technical risk) 3. Risks arising from the Insurer (contractual risk)
Only 2
2 and 3
Only 1
Only 3
1,2 and 3

UnAttempted

CORRECT ANSWER:

2 and 3

Explanation:

This mainly concerns the technical risk, in other words the risk run by granting cover through
an insurance policy. There is also a contractual risk, as for example an unjustified, exaggerated
or fraudulent claim.

These two risks are covered by the reinsurance contract in the “Follow the Fortunes” clause.

Q 10.
Reinsurance provides a means of communication between the reinsures and
insurers of different markets and frequently acts as a catalyst by the following: 1.
Suggesting technical restrictions 2. Propagating new forms of reinsurance 3.
Communicating international experience
1,2 and 3
Only 3
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Only 1
Only 2
1 and 3

UnAttempted

CORRECT ANSWER:

1 and 3

Explanation:

Reinsurance provides a means of communication between the reinsurers and insurers of

different markets and frequently acts as a catalyst by:

a. Propagating new forms of insurance,

b. Communicating international experience,
c. Suggesting technical restrictions.

Q 11.
Which of the following is the correct statement with regards to rate of exchange? 1.
The treaty agreement will normally provide that the accounting and settlement will
be in original currency but the domestic currencies shall form the basis of the
liability of the reinsurer. 2. Normally the unit of currency expressed in a treaty
agreement is the domestic currency of the ceding insurer concerned. 3. The ceding
insurer will also retain the right in the event of major changes in the currency
situation or of restrictions on currency transfers to revert partially or wholly to
accounting in original currencies.
2 and 3
Only 1
Only 2
1 and 3
1,2 and 3

UnAttempted

CORRECT ANSWER:

2 and 3

Explanation:

Normally the unit of currency expressed in a treaty agreement is the domestic currency of the
ceding insure concerned.

The treaty agreement will normally provide that the accounting and settlement will be in
domestic currency but the original currencies shall form the basis of the liability of the

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reinsurer.

The ceding insurer will also retain the right in the event of major changes in the currency
situation or of restrictions on currency transfers to revert partially or wholly to accounting in
original currencies.

This condition is usually found in treaties covering domestic as well as overseas business.

Q 12.
Several general factors affect the rate for calculating premium for XL cover. Some of
them are as follows: 1. Class of insurance business 2. Level of excess point 3. The
limit and exposure to the reinsurer
1,2 and 3
Only 1
Only 2
1 and 2
2 and 3

UnAttempted

CORRECT ANSWER:

1,2 and 3

Explanation:

The premium for an excess of loss cover is usually expressed as a percentage (the rate) of the
gross premium income written by the reinsured for the type of risk or class of business
covered.

Several general factors affect the rate, the main ones being the:

a) Level of excess point,

b) The limit and exposure to the reinsurer,

c) The class of insurance business,

d) The exclusions,

e) The underwriting limits of the reinsured and t

f) The past experience of the treaty.

Q 13.
Under the terms of an excess of loss treaty, ________________ is the amount of the
ceding insurer’s loss which is eligible for recovery.
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Ground Up Loss
Salvage Loss
Ultimate Net Loss
Recoverable Loss
Non-Recoverable Loss

UnAttempted

CORRECT ANSWER:

Ultimate Net Loss

Explanation:

Ultimate Net Loss is the amount of the ceding insurer`s loss which is eligible for
recovery under the terms of an excess of loss treaty.

Q 14.
Which of the following statement/s is/are true regarding consideration for the
reinsurance contract? 1. The consideration for the reinsurance contract is the
reinsurance premium paid by the reinsured to the reinsurer 2. In reinsurance
contract, consideration may be agreed at the time that the contract was made 3. In
reinsurance contract, consideration may be a share of the original premium subject
to deductions such as for commissions
Only 1
1 and 2
1 and 3
1,2 and 3
Only 2

UnAttempted

CORRECT ANSWER:

1,2 and 3

Explanation:

The consideration for the reinsurance contract is the reinsurance premium paid by the
reinsured to the reinsurer, which may be:

i. A share of the original premium subject to deductions such as for commissions or

ii. As may be agreed at the time that the contract was made.

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Q 15.
State the important factor/s in reinsurance programme design with regards to
ensuring acceptability of programme to reinsurers. 1. Investment and liquidity
policy 2. Geographical location of exposures 3. Reinsurance market conditions
Only 1
1 and 2
2 and 3
Only 3
1,2 and 3

UnAttempted

CORRECT ANSWER:

Only 3

Explanation:

There are various important factors in reinsurance programme design, some of them are:

a. Investment & liquidity policy which is relevant to ascertaining cash flow produced by
business.
b. Geographical location of operations which is relevant to analysing exposure to various
perils.
c. Reinsurance market conditions which is relevant to ensuring acceptability of programme
to reinsurers.

Q 16.
Which clause states that premium is to be paid to the reinsurer at the same rate as
received by the ceding insurer.
Original conditions: Follow the fortunes
Business covered: Attachment of cessions – proportional
Net retained lines: Protecting net retention
Underwriting: Retention and limits
Business covered: insuring clause non-proportional

UnAttempted

CORRECT ANSWER:

Original conditions: Follow the fortunes

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Explanation:

Original conditions: Follow the fortunes clause states that reinsurances are fully subject to the
same terms and conditions as the original insurance. Premium is to be paid to the reinsurer at
the same rate as received by the ceding insurer.

Q 17.
Choose correct option from the following. Law of reinsurance is primarily based on
the _________________.
Law of contract
Law of sales
Law of faith
Law of accounting
Law of lease

UnAttempted

CORRECT ANSWER:

Law of contract

Explanation:

A reinsurance transaction is an “agreement made between two parties, called the reinsured (or
ceding insurer, a term also often used especially in relation to reinsurances on a proportional
basis) respectively, whereby the reinsurer agrees to accept a certain fixed share of the
reinsured’s risk upon terms as set out in the agreement”.

Such an agreement is a contract and the law of reinsurance is based primarily on the law of
contract.

Q 18.
What is the method followed for estimated losses, in cases where there is a
provision for portfolio entry in the treaty concerned? 1. The underwriter may also
decide to make an additional ‘ad hoc’ provisions for claims incurred but not
reported (IBNR) 2. The same amount is to be included as estimate for outstanding
claims 3. The trend of incurred claims ratio over a period would assist to estimate
the incurred claims for the current year and a provision for outstanding claims can
be made after deducting the paid claims of the year
Only 1
Only 2
1 and 2
2 and 3
1,2 and 3

UnAttempted

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CORRECT ANSWER:

Only 2

Explanation:

The underwriter has to review each of his acceptances and make a reasonably accurate
estimate of outstanding losses.

Some of the methods followed are:

a) Estimated losses as advised by the ceding insurer as at the date of closing. If this is not
available estimates at the latest available date plus large losses intimated subsequently but not
paid;

b) Where there is a provision for portfolio entry in the treaty concerned, the same amount is to
be included as estimate for outstanding claims;

Q 19.
Which from below, is the true statement with regards to Original Conditions Clause.
It states in what circumstances a recovery is available to the ceding insurer and the
extent of that recovery
It intends that reinsurance will apply simultaneously and automatically with that of the
ceding insurer as soon as his retention is exceeded with reference to surplus insurance
It allows the ceding insurer to effect other reinsurances in priority so that there is an
additional treaty which protects the net account only example, where the treaty operates
after proportional treaty or facultative cessions
It states that the reinsurer follows his ceding insurer in his original contract of insurance
with his insured
It states that the premium is to be paid to the reinsurer at the same rate as received by
the ceding insurer

UnAttempted

CORRECT ANSWER:

It states that the premium is to be paid to the reinsurer at the same rate as received by the
ceding insurer

Explanation:

Original Conditions clause states that reinsurances are fully subject to the same terms and
conditions as the original insurance. Premium is to be paid to the reinsurer at the same rate as
received by the ceding insurer.

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Q 20.
Choose the correct option from below, where each offer will have to be scrutinized
individually and either accepted or declined. 1. Facultative Reinsurance 2. Treaty
Reinsurance 3. Quota share Reinsurance
Only 3
Only 2
Only 1
1 and 2
1, 2 and 3

UnAttempted

CORRECT ANSWER:

Only 1

Explanation:

Facultative reinsurance business will necessarily involve more administrative work because
each offer will have to be scrutinised individually and either accepted or declined.

Q 21.
The Pure Burning cost is loaded by a suitable factor to cover costs of – 1. Reserve
for catastrophe 2. Expenses of management 3. Costs of acquisition
1,2 and 3
1 and 2
2 and 3
Only 1
Only 3

UnAttempted

CORRECT ANSWER:

1,2 and 3

Explanation:

The Pure Burning Cost is loaded by a suitable factor to cover costs of acquisition, expenses of
management, reserve for catastrophe, and element of profit. It is usual to note in practice a
loading of 25 to 30%.

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Q 22.
Which of the following statements is correct? 1.The Per Event retention is
controlled by reasonable estimation of financial consequences. 2.The Per Event
retention is controlled by controlled and informed decisions. 3.The Per Event
retention depends on the number of individual risks that could be hit by one event.
Only 2
Only 1
1 and 3
2 and 3
1,2 and 3

UnAttempted

CORRECT ANSWER:

Only 1

Explanation:

There are two types of retention that are required to be managed: 1. Per Event 2. Per Risk

1. Per event retention

The Per Event retention is managed through reasonable estimation of financial consequences
and by allowing a catastrophe reserve for funds to accumulate and be available over the long
term.

Q 23.
The reinsured can split & structure his total XL requirement in layers depending on
which factors? 1. Cost effectiveness 2. Market conditions 3. Availability of capacity
Only 1
Only 2
1,2 and 3
1 and 2
2 and 3

UnAttempted

CORRECT ANSWER:

1,2 and 3

Explanation:
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The reinsured can split & structure his total XL requirement in layers depending on market
conditions, availability of capacity and cost effectiveness.

Q 24.
A programme design can be successful if its evaluation and follow up exist in full
measure. This design and the follow up are based on ____________
Theoretical studies
Transactional studies
Simulation and modeling studies
Financial studies
Practical studies

UnAttempted

CORRECT ANSWER:

Simulation and modeling studies

Explanation:
A programme design can be successful if its evaluation and follow up exist in full measure. This
design and the follow up are based on simulation and modeling studies.

Q 25.
The primary objective of reinsurance is that it should reduce the insurer’s
probability of ‘ruin’ at a price acceptable to it . In what context is the word ‘ruin’
used by an actuary?
Loss
Bankruptcy
Deficit
Debit
All of the above

UnAttempted

CORRECT ANSWER:

Bankruptcy

Explanation:

The word ‘ruin’ is used by actuaries in reinsurance to describe- 'bankruptcy'.

Q 26.
In India IRDA has stipulated on the use of reinsurers with ratings below certain limit.
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As per IRDA these ratings cannot be below ____________

AAA
AAB
BBB
CCC
BB

UnAttempted

CORRECT ANSWER:

BBB

Explanation:
In India IRDA has stipulated the use of reinsurers with rating not less than BBB.

Q 27.
________________ 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.
Retrocession
Facultative obligatory reinsurance
Treaty reinsurance
Facultative reinsurance
Excess of loss reinsurance

UnAttempted

CORRECT ANSWER:

Facultative obligatory reinsurance

Explanation:
Facultative obligatory reinsurance 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.

Q 28.
In a year of catastrophe, the reinsurance programme should be designed in such a
manner that ________________
The invested funds manage a good cash flow
The invested funds have a cash loss estimation facility
The strain on the resources of the insurer must be minimum
The strain on the resources of the insurer must be maximum
None of the above

UnAttempted

CORRECT ANSWER:
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The strain on the resources of the insurer must be minimum

Explanation:
In a year of catastrophe, the reinsurance programme should be designed in such a manner that
the strain on the resources of the insurer must be minimum.

Q 29.
Which of the following reinsurance commission method is used to calculate the rate
of commission based on the loss ratio of the treaty during any one treaty year or
during any one underwriting year?
Flat rate of commission
Sliding Scale of commission
Overriding commission
Profit commission
Profit rate of commission

UnAttempted

CORRECT ANSWER:

Sliding Scale of commission

Explanation:
Sliding scale of commission method is used to calculate rate of commission based on the loss
ratio of the treaty during any one treaty year or during any one underwriting year.

Q 30.
Which of the following is an example of ‘short tail’ class of business?
Property
EAR
Marine
Liability
None of the above

UnAttempted

CORRECT ANSWER:

Property

Explanation:

Property insurance is an example of short tail class of business.

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Q 31. When market is hard, and there is no retrocession support, then what will be the
repercussions?
The absence of retrocession support exerts significant influence on the rate quoted by
lead underwriter as the primary reinsurer.
The absence of retrocession support exerts significant influence on the rate quoted by
ceding insurer
Lead underwriters yield to broker pressure to quote lower rates
Lead underwriters yield to broker pressure to quote higher rates
None of the above

UnAttempted

CORRECT ANSWER:

The absence of retrocession support exerts significant influence on the rate quoted by
lead underwriter as the primary reinsurer.

Explanation:
When market is hard and there is no retrocession support, then the absence of retrocession
support exerts significant influence on the rate quoted by lead underwriter as the primary
reinsurer.

Q 32.
ABC Company is seeking insurance for its tanker, an ocean going vessel. ABC
Company will have to seek insurance under ___________
Property insurance
Marine hull insurance
Marine cargo insurance
Life insurance
Marine property insurance

UnAttempted

CORRECT ANSWER:

Marine hull insurance

Explanation:
For Tanker, an ocean going vessel, ABC Company will have to seek insurance under marine hull
insurance.

Q 33.
“In countries where minimum solvency margins based on net premiums are applied,
reinsurance can reduce net premiums.” What does this statement imply?
An insurer cannot accept an increasing volume of business after requiring a
corresponding increase in capital.
An insurer can accept an increasing volume of business after requiring a corresponding
increase in capital.
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An insurer cannot accept an increasing volume of business before requiring a

corresponding increase in capital.
An insurer can accept an increasing volume of business without requiring a
corresponding increase in capital.
None of the above

UnAttempted

CORRECT ANSWER:

An insurer can accept an increasing volume of business without requiring a corresponding

increase in capital.

Explanation:
“In countries where minimum solvency margins based on net premiums are applied,
reinsurance can reduce net premiums.” Thus it implies that an insurer can accept an increasing
volume of business without requiring a corresponding increase in capital.

Q 34.
In which of the following countries did the Risk Retention Group originate?
The US
The UK
India
China
Germany

UnAttempted

CORRECT ANSWER:

The US

Explanation:
Risk Retention Group originated in the US with the passing of the Liability Risk Retention Act,
1981.

Q 35.
Which of the following is a type of reinsurance contract?
Entreaty reinsurance
Facilitative reinsurance
Facultative reinsurance
Treated reinsurance
None of the above

UnAttempted

CORRECT ANSWER:

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Facultative reinsurance

Explanation:
Facultative reinsurance is a type of reinsurance contract.
This is a method of reinsuring risks on an individual basis where the insurer has no obligation
to cede a risk from an original insured and the reinsurer has the option of accepting or declining
each proposal.

Q 36.
‘If the risk is not a very good risk the insurer may keep less and the amount to be
reinsured will therefore increase in case of treaties without a line limitation.’ This is
true for which of the following categories of reinsurance?
Property reinsurance
Fire reinsurance
Aviation reinsurance
Marine reinsurance
Life reassurance

UnAttempted

CORRECT ANSWER:

Property reinsurance

Explanation:
If the risk is not a very good risk the insurer may keep less than (Rs.x) and the amount to be
reinsured will therefore increase in case of treaties without a line limitation. This is true in case
of property reinsurance.

Q 37.
In the case of _________________, all business exchanged with the insurer or
reinsurer is summarised in a sheet, showing cessions on one side and matching
acceptances on the other side.
Reinsurance arrangement
Reciprocal exchange
Retrocession arrangement
Cancellation of reinsurance agreement
Insurance exchange

UnAttempted

CORRECT ANSWER:

Reciprocal exchange

Explanation:

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In case of reciprocal exchange, all business exchanged with the insurer or reinsurer is
summarised in a sheet, showing cessions on one side and matching acceptances on the other
side.

Q 38.
Which of the following is a normal method of reinsurance in miscellaneous accident
business?
Per risk basis
Per event basis
Excess of loss basis
Surplus basis
Excess of risk basis

UnAttempted

CORRECT ANSWER:

Surplus basis

Explanation:
Surplus basis is a normal method of reinsurance in miscellaneous accident business.

Q 39.
In certain cases, there may arise situations, when substantial gross payments need
to be made immediately in respect of risks which are retained marginally. What can
be done to eliminate the strain arising from this aspect on invested funds?
A cash loss stability facility is administered in all outward arrangements.
A cash loss recovery facility is administered in all outward arrangements.
Programme design is modified to destabilise cash flow
Programme design is modified to achieve better liquidity management
A cash loss stability facility is administered in all inward arrangements.

UnAttempted

CORRECT ANSWER:

A cash loss recovery facility is administered in all outward arrangements.

Explanation:
In certain cases, situations may arise when substantial gross payments need to be made
immediately in respect of risks which are retained marginally. To eliminate the strain arising
from this aspect on invested funds a cash loss recovery facility is administered in all outward
arrangements.

Q 40.
In which of the following business is Reciprocal reinsurance trading most popular?
Accident/Liability

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Motor
Property
Fire and Hull
Marine

UnAttempted

CORRECT ANSWER:

Fire and Hull

Explanation:

Reciprocal reinsurance trading is most popular in fire and hull.

The practice of reciprocal reinsurance trading which is so evident in the fire and hull lines of
business is not widely prevalent in other lines of business.

Q 41.
In a reinsurance company, who is responsible for the acceptance of business and
the profits made?
Agents
Brokers
Underwriters
Regulators
Reinsurers

UnAttempted

CORRECT ANSWER:

Underwriters

Explanation:
In a reinsurance company, an underwriter will be responsible for the acceptance of business
and the profits made.

Q 42.
Which of the following is a technique of risk management?
Asset management
Risk retention financing
Risk retention group
Risk transfer
Asset transfer

UnAttempted

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CORRECT ANSWER:

Risk transfer

Explanation:

Risk transfer is a technique of risk management.

Q 43.
Which of the following covers is sought for protection against an aggregation of
losses arising from a common event such as flood?
Excess of loss- Working (per risk)
Excess of loss- Catastrophe
Stop loss
Aggregate excess of loss
Aggregate stop loss

UnAttempted

CORRECT ANSWER:

Excess of loss- Catastrophe

Explanation:
Excess of loss-catastrophe is sought for protection against an aggregation of losses arising
from a common event such as flood.

Q 44.
When was Lloyd`s China established?
2010
2007
2004
2001
2002

UnAttempted

CORRECT ANSWER:

2007

Explanation:

Lloyd’s China was established in the year 2007 through a insurer, Lloyd's Reinsurance Insurer
(China) Limited (Lloyd’s China), to provide reinsurance capacity for the fast growing Chinese
insurance market.
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Q 45.
The first reinsurance contract in fire insurance business was concluded
in____________.
1821
1853
1863
1880
1831

UnAttempted

CORRECT ANSWER:

1821

Explanation:

The first reinsurance contract in fire insurance business was concluded in 1821.

Q 46.
Which of the following is incorrect with respect to reinsurance premium?
The reinsurance premium paid by the ceding insurer to the reinsurer(s) is a percentage
of the original premium paid by the insured.
Commissions paid by the ceding insurer to agents and brokers are deducted from the
reinsurance premium.
The percentage paid to the reinsurer(s) is the same as the percentage of the sum
insured ceded by the ceding insurer.
The premiums for any risks excluded from the treaty and return premiums due under
cancelled policies are not included in the reinsurance premium.
None of the above.

UnAttempted

CORRECT ANSWER:

Commissions paid by the ceding insurer to agents and brokers are deducted from the
reinsurance premium.

Explanation:
Commissions paid by the ceding insurer to agents and brokers are not deducted from the
reinsurance premium. Hence, this option is incorrect.

Q 47.
Which of the following is a benefit derived by ceding insurers from a reciprocal
exchange of reinsurance treaties?
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This arrangement is useful in widely dispersed risks such as in agriculture exposed to

pest damage.
It provides a wider spread for the net retained portfolio of the insurer with an improved
balance, thus ensuring greater stability in underwriting surplus.
It does not enable direct insurers to produce a more balanced book of business for
themselves and for their treaty reinsurers.
Ceding insurers are able to secure a profit advantage on the strength of the superior
balance of their portfolio.
None of the above

UnAttempted

CORRECT ANSWER:

It provides a wider spread for the net retained portfolio of the insurer with an improved
balance, thus ensuring greater stability in underwriting surplus.

Explanation:
The benefit of Reciprocal reinsurance trading is that it “provides a wider spread for the net
retained portfolio of the insurer with an improved balance thus ensuring greater stability in
underwriting surplus”.

Q 48.
In which of the following reinsurance contract insurer needs to obtain reinsurance
coverage before accepting to insure a client?
Quota share
Facultative
Retrocession
Treaty reinsurance
Facultative obligatory treaty

UnAttempted

CORRECT ANSWER:

Facultative

Explanation:
When reinsuring facultatively, the insurer may obtain reinsurance coverage before accepting to
insure a client.

Q 49.
ABC ltd provides database access to their customers as an extension of the intranet
to download and use certificates of insurance or to ascertain their own account
balance status, etc. This access is known as ____________
World wide web
Extranet
Intranet
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Internet
None of the above

UnAttempted

CORRECT ANSWER:

Extranet

Explanation:
ABC ltd provides database access to their customers as an extension of the intranet to
download and use certificates of insurance or to ascertain their own account balance status,
etc. This access is known as extranet.

Q 50.
_________________ is a general practice under surplus treaties where the ceding
insurer provides the reinsurers with a list detailing the risks ceded to the treaty.
Reinsurer's retention
Cessation
Ceding insurers retention
Bordereaux
Ceding commission

UnAttempted

CORRECT ANSWER:

Bordereaux

Explanation:
Bordereaux is a general practice under surplus treaties where the ceding insurer provides the
reinsurers with a list detailing the risks ceded to the treaty.

Out of 50 questions 50 are un attempted.

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Q 1.
In its simplest form _________________solution is very similar to a loan agreement
with a bank with the condition that the policyholder assures himself the right to
raise either equity or loan capital at terms agreed beforehand should there be a
contractually defined insurance event.
Multi-Year Package
Contingent Capital
Financial reinsurance
Finite risk
Multi - Trigger Cover

CORRECT ANSWER
Explanation:

Contingent capital represents one way of financing a loss after the event has occurred. This
solution come in handy when a major loss makes causes a crisis of liquidity and it is very
expensive or even impossible to raise fresh capital.

In its simplest form this solution is very similar to a loan agreement with a bank with the
condition that the policyholder assures himself the right to raise either equity or loan capital at
terms agreed beforehand should there be a contractually defined insurance event.

Q 2.
Which of the following statements is correct regarding the Original Conditions
Clause? 1. Premium rate is the same for the Reinsurer, as received by the ceding
insurer 2. The same terms and conditions are applied to Reinsurances as the
original insurance 3. The insurer and the reinsurer share the same interest
1 and 2
2 and 3
Only 1
Only 3
1,2 and 3

CORRECT ANSWER
Explanation:

Original conditions clause states that reinsurances are fully subject to the same terms and
conditions as the original insurance.

Premium is to be paid to the reinsurer at the same rate as received by the ceding insurer. If
premium is paid at net rates the clause would then specify the deductions to be made from
gross rates to arrive at net rates.

The reinsurer follows his ceding insurer in his original contract of insurance with his insured. In
essence, the insurer and the reinsurer share the same interest.

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Q 3.
What does the reinsurer shares in the situation of insolvency of the ceding insurer?
1. Insurer’s “commercial fate” 2. Insurer’s “insurance fate” 3. Insurer’s “non-
insurance fate”
Only 1
Only 2
Only 3
1 and 2
1,2 and 3

CORRECT ANSWER
Explanation:

The reinsurer only follows the ceding insurer`s fortunes from a technical point of view, as
stipulated in the treaties. The reinsurer only shares the “insurance fate”- in other words, he is
not affected by the insurer’s “commercial fate”.

Q 4.
Choose from below the statements relevant to ‘Retention’. 1. Retention incorporates
requirements of rating, liquidity and return 2. Proportion of risk that is retained by
the cedant is known as retention 3. Retention is a combination of the financial
consequences of risk and event based losses.
Only 1
Only 2
1 and 2
1,2 and 3
2 and 3

CORRECT ANSWER
Explanation:

Proportion of risk that is retained by the cedant is known as retention. Insurers have
different systems of retention and reinsurances for different risks and their related
insurances.

In practice, retention is a combination of the financial consequences of risk and event

based losses.

This incorporates requirements of rating, liquidity and return

Q 5.
Under which reinsurance contract, the reinsurer agrees to indemnify the reinsured
for losses that exceed a specified monetary amount identified by the reinsured?
Surplus reinsurance
Facultative reinsurance
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For obligatory reinsurance

Treaty reinsurance
Excess of loss reinsurance

WRONG ANSWER

CORRET ANSWER:
Excess of loss reinsurance
Explanation:

Under Excess of Loss contracts, the reinsurer agrees to indemnify the reinsured for losses that
exceed a specified monetary amount identified by the reinsured.

Such an identified amount is the deductible also known as ‘excess’ or ‘priority’ or ‘underlying’.

Q 6.
Reinsurance plays an essential role in_________________. 1. Ability to write
untested and new risk exposures 2. Increasing the insurer’s capacity to handle
larger risk 3. Stabilizing the insurer’s operating result
Only 1
Only 2
Only 3
2 and 3
1,2 and 3

CORRECT ANSWER
Explanation:

Basically, the key objectives of an insurer in arranging reinsurance are:

a) Increasing his capacity to handle larger risks by passing to the reinsurer

b) Enhancing ability to accept larger lines than his capital allows,

c) Stabilising his operating results from year to year with the reinsurer

d) Increasing the chances of making a profit

e) Ability to write untested and new risk exposures

Q 7.
Spot the wrong option from below statements which describes the advantages of
protection offered by reinsurance.
An insurer has more capacity to accept though he needs to restrict exposure to a level
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commensurate with his own net resources.

An insurer can accept old and tested risk exposures with reinsurance support
The net premiums and losses are stabilized over a shorter period of time.
The incidence of loss is widely distributed
The problem of accumulations within each line of business and between different lines
is controlled.

CORRECT ANSWER
Explanation:

The advantages of the protection offered by reinsurance can be summarized as under:

a) An insurer has more capacity to accept though he needs to restrict exposure to a level
commensurate with his own net resources.

b) The net premiums and losses are stabilized over a shorter period of time.

c) the incidence of loss is widely distributed.

d) The problem of accumulations within each line of business and between different lines is
controlled.

e) an insurer can accept new and untested risk exposures with reinsurance support.

Q 8.
What is the correct explanation for ‘Reciprocity’?
It is just another way to refer to the reinsured or ceding insurer
It is the mutual exchanging of reinsurance, often in equal amounts, from one party to
another, the object of which is to stabilize overall results
It is utilized in excess of loss insurance whereby the reinsurer is responsible for all
claims occurring during the currency of the treaty without reference to the period of the
original policies
It is explained as, reported or not reported losses which have occurred but not have
been paid
It is explained as continual, gradual or repeated exposure to an adverse condition
which is neither intended nor expected to result in injury or damage, as contrasted with an
accident which is a sudden happening

WRONG ANSWER

CORRET ANSWER:
It is the mutual exchanging of reinsurance, often in equal amounts, from one party to
another, the object of which is to stabilize overall results
Explanation:

Reciprocity means the mutual exchanging of reinsurance, often in equal amounts, from one
party to another, the object of which is to stabilize overall results.

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Q 9.
Identify the correct statement with regards to Stop loss method. 1. It applies on the
basis of per risk (working) 2. It applies on the basis of catastrophe 3. It applies to
the loss ratio of the reinsured for any one class of business
Only 3
Only 2
1 and 2
2 and 3
1 and 3

WRONG ANSWER

CORRET ANSWER:
Only 3
Explanation:

Stop loss method applies to the loss ratio of the reinsured for any one class of business. This
does not apply on the basis of per risk (working) or catastrophe.

Q 10.
“A claim may involve the previous contract or the present one depending on the
date on which the policy was issued”. This is true with regards to which of the
following methods? 1. Reinstatement basis 2. Losses occurring basis 3. Risk
attaching basis
Only 1
Only 2
Only 3
2 and 3
1,2 and 3

WRONG ANSWER

CORRET ANSWER:
Only 3
Explanation:

The “risk attaching” basis is used to avoid the hazard of the reinsurer cancelling a contract and
leaving the insurer without cover for the duration of the policies.

Under this method, claims under policies issued or renewed during the contract period are
covered no matter in which year they may occur. Thus, a claim may involve the previous
contract or the present one depending on the date on which the policy was issued.

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Q 11.
Identify the correct statements with regards to Working (Risk) Excess of Loss (XL)
reinsurance. 1. Working (Risk) Excess of Loss (XL) reinsurance is intended to limit
losses that arise on the reinsured’s day-today operations. 2. It caters to the
reinsured’s need for protection against number of losses that arise out of a single
accident, occurrence or event. 3. 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 established only after an award has been made by a court of law.
Only 1
1,2 and 3
Only 2
1 and 3
2 and 3

WRONG ANSWER

CORRET ANSWER:
1,2 and 3
Explanation:

Working (Risk) Excess of Loss (XL) reinsurance is intended to limit losses that arise on the
reinsured’s day-today operations. It caters to the reinsured’s need for protection against
number of losses that arise out of a single accident, occurrence or event.

Similarly, 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 established only after an award has been
made by a court of law.

Q 12.
The principal objective of the Oil & Energy Insurance Syndicate which has been
officially registered in the Kingdom of Bahrain, is to__________________________.
provide assistance to the respective governments in setting up and operating
catastrophe insurance programs
operate as regional pool supporting the countries in their respective regions
undertake reinsurance and retrocession business from the African and Asian markets
underwrite oil and energy business from FAIR members
provide political risk insurance (guarantees) to the private sector

WRONG ANSWER

CORRET ANSWER:
underwrite oil and energy business from FAIR members
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Explanation:

F.A.I.R operates an Aviation Pool and a Oil & Energy Insurance Syndicate, which has been
officially registered in the Kingdom of Bahrain as an independent legal entity. Its principal
objective is to underwrite oil and energy business from FAIR members.

Q 13.
XYZ Ltd Insurance Co. has a proportional treaty with reinsurer P Re Co. (10%) and
reinsurer Q Re Co. (90%). The insurer has accepted a risk of Rs 50,00,000. The
insurer has a retention limit of Rs 10,00,000 and ceded the remaining risk of Rs
40,00,000 to the treaty. There is a claim of Rs 20,00,000. How much claim amount
will be paid by P Re Co.?
Rs. 1440000
Rs. 116000
Rs. 40000
Rs. 160000
Rs. 60000

WRONG ANSWER

CORRET ANSWER:
Rs. 160000
Explanation:

A claim falling within the scope of a treaty will be shared between the ceding insurer and his
reinsurer in the same proportions as the original sum insured was reinsured. All reinsurers
participating bear their respective share.

The above question can be explained as follows:

Total Sum Insured = Rs. 50 Lac

Ceding Insurer Retains = Rs. 10 Lac

Ceded to Surplus Treaty = Rs. 40 Lac i.e., 80% of Sum Insured

Claim Amount = Rs. 20 Lac

Ceded to Surplus Treaty (80% of Rs. 20 Lac) = Rs. 16 Lac

Therefore,

Share of reinsurer P Re Co. (10% of Rs. 16 Lac) = Rs. 1,60,000/-

Share of reinsurer Q Re Co. (90% of Rs. 16 Lac) = Rs. 14,40,000/-

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Q 14. The method mostly followed in majority of the property proportional treaties is
__________. 1. Clean cut method 2. 50% method 3. Twenty fourth system
Only 1
Only 2
2 and 3
1 and 2
1,2 and 3

WRONG ANSWER

CORRET ANSWER:
Only 1
Explanation:

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 Year the method is known as “clean-cut” method.

This method is usually followed in most of the property proportional treaties as it saves
considerable administrative work.

Q 15.
What does the logic lead to the determination of the schedule of retentions takes
note of?
Return
Sum insured
Reinsurance
Years
Loss exposure

CORRECT ANSWER
Explanation:

Each insurer draws up his schedule of retentions in property insurance. The first step is
therefore to determine the level of optimum retention. Even though retentions are expressed in
terms of sums insured, the logic leading to the determination of the schedule of retentions takes
note of the loss exposures.

Q 16.
The intention of Access to records clause is to: 1. protect the ceding insurer against
any inadvertent delays, errors and omissions 2. give the reinsurer the right to
inspect any book or record of the ceding insurer which are relevant to the business
reinsured 3. expect immediate rectification and nothing in the clause would operate
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to increase the liability of the reinsurers beyond agreed limits

1and 2
Only 2
Only 1
1,2 and 3
2 and 3

WRONG ANSWER

CORRET ANSWER:
Only 2
Explanation:

This intention of this clause is to give the reinsurer the right to inspect any book or record of the
ceding insurer which are relevant to the business reinsured.

The inspection, which is at the reinsurer’s expense, must be carried out during normal office
hours and the right remains available to the reinsurer so long as any liability under the
reinsurance remains unsettled.

Q 17.
The detractors of which international body works on the reverse theory of insulated
and protected markets?
World bank
Lloyd’s syndicate
UNCTAD
WTO
F.A.I.R

WRONG ANSWER

CORRET ANSWER:
WTO
Explanation:

The World Trade Organisation (WTO) has been actively promoting free trade in services. Free
trade and globalising trade in services is an important objective of this world body with a view
to promoting expanding market opportunities in the long term. Its detractors work on the
reverse theory of insulated and protected markets.

Q 18.
Identify the key operational requirements and /or aspects of a treaty document, from
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the following: 1. Method of cession 2. Line 3. Second surplus treaty

Only 1
Only 2
Only 3
1 and 2
1,2 and 3

WRONG ANSWER

CORRET ANSWER:
1,2 and 3
Explanation:

Treaty as a document is an agreement between a ceding insurer and his reinsurers to

automatically accept risks that the ceding insurer intends to share.

The following are key operational requirements and / or aspects of a treaty document.

i. Line
ii. Second surplus treaty
iii. Method of cession

Q 19.
Recognize the correct statement from the following. 1. The larger the portfolio the
smaller the degree of fluctuation 2. The aim in determining retention is not to
eliminate fluctuation but to determine the degree of acceptable fluctuations 3. The
stability of a portfolio as it grows and in contrast to the relative volatility of a small
portfolio is referred to as balance
1 and 3
1 and 2
Only 1
2 and 3
1,2 and 3

CORRECT ANSWER
Explanation:

It can be objectively shown that the larger the portfolio the smaller the degree of fluctuation.

The stability of a portfolio as it grows and in contrast to the relative volatility of a small portfolio
is referred to as balance.

The aim is not to eliminate fluctuation – this condition would in any case need 100% reinsurance
or alternative risk financing – but to determine the degree of acceptable fluctuation.

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Q 20.
What are the facts regarding Losses occurring basis method? 1. When a claim
occurs, there is a checking about when the policy was issued and what contract
was affected 2. There is no portfolio withdrawal at cancellation 3. There is no
portfolio taken over at inception
Only 2
Only 3
1,2 and 3
2 and 3
1 and 3

WRONG ANSWER

CORRET ANSWER:
2 and 3
Explanation:

The merit of this system is its simplicity. Each contract year is self-contained. There is no
portfolio taken over at inception, no portfolio withdrawn at cancellation, and no checking when
a claim occurs to see when the policy was issued and what contract was affected.

Q 21.
A rare form of treaty which was in use previously is ________________________.
Variable quota share
Quota share
Facultative
Surplus
Facultative Obligatory

CORRECT ANSWER
Explanation:

Facultative Obligatory Treaty is a rare form and was in use previously. This can be placed in
weak reinsurance market conditions and is therefore not adequate to be relied upon for primary
reinsurance capacity.

Q 22.
It is usual to note in practice a loading of ____________ with regards to pure
burning cost.
25% to 30%
35% to 45%
25% to 30%
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50% to 75%
10% to 25%

CORRECT ANSWER
Explanation:

The Pure Burning Cost is loaded by a suitable factor to cover costs of acquisition, expenses of
management, reserve for catastrophe, and element of profit. It is usual to note in practice a
loading of 25 to 30%.

Q 23.
Additional commission, over and above any share of the original commission that
the reinsurer may pay to the ceding insurer, when he receives business as an
inward retrocession is called as _____________________.
Profit Commission
Flat Commission
Brokerage
Sliding Commission
Overriding Commission

CORRECT ANSWER
Explanation:

When a reinsurer receives business as an inward retrocession, the reinsurer will allow the
ceding insurer an additional commission (overriding commission) over and above any share of
the original commission that he may pay.

Q 24.
Which of the following is a benefit derived from reciprocal trading?
It enables the reinsurer to add to his net premiums and net profits
It provides a wider spread for the net retained portfolio of the reinsurer with lowered
losses, thus ensuring greater stability in underwriting surplus
It enables the ceding insurer to add to his net premiums and net profits
It provides a wider spread for the net retained profits/income of the reinsurer with an
improved performance, thus ensuring greater stability in reciprocal trading
None of the above

WRONG ANSWER

CORRET ANSWER:
It enables the ceding insurer to add to his net premiums and net profits
Explanation:
One of the benefits derived from reciprocal trading is that it enables the ceding insurer to add to
his net premiums and net profits.
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Q 25.
Which of the following forms of reinsurance is used to arrange automatic additional
capacity for the surplus after exhausting the existing automatic arrangements for
reinsurance cessions?
Facultative
Retrocession
Treaty reinsurance
Facultative obligatory treaty
Quota Share

WRONG ANSWER

CORRET ANSWER:
Facultative obligatory treaty
Explanation:
Facultative obligatory reinsurance is used to arrange automatic additional capacity for surplus
after exhausting existing automatic arrangements for reinsurance cessions.

Q 26.
Which of the following is not a primary objective of reinsurance?
To ensure that it is not placed at a serious disadvantage compared to its competitors.
To stabilise any fluctuation in the company’s annual aggregate claims experience so
that wide fluctuations in results from one year to the next are avoided.
To secure technical assistance in rating, terms and conditions of cover and processing
of claims.
To safeguard the solvency of an insurer against random fluctuations in the overall
claims experience and an accumulation of losses arising out of one event
All of the above

CORRECT ANSWER
Explanation:
"To secure technical assistance in rating, terms and conditions of cover and processing of
claims” is not a primary objective of reinsurance.

Q 27.
Which of the following companies became Indian reinsurer after nationalisation?
GIC
National Insurance Co. Ltd
The New India Assurance Co Ltd
IRDA
The Oriental Fire and General Insurance Co. Ltd.

CORRECT ANSWER
Explanation:
Post nationalisation, GIC became the Indian reinsurer. GIC handled all nonreciprocal inwards
into India through a division styled SWIFT, on behalf of itself and the four companies.
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Q 28.
Which of the following details are not included in a list of bordereaux?
Amount reinsured
Territorial scope
Name of insured
Class of risk
Ceding insurer’s retention

CORRECT ANSWER
Explanation:

Details of territorial scope are not included in the list of bordereaux.

Q 29.
___________is an automatic reinsurance agreement whereby the ceding insurer is
bound to part with a fixed percentage of every risk written by it.
Proportional treaty
Quota share treaty
Surplus treaty
Proportional facultative
All of the above

CORRECT ANSWER
Explanation:
The quota share treaty is an automatic reinsurance agreement whereby the ceding insurer is
bound to part with a fixed percentage of every risk written by it.

Q 30.
What is the main reason for increase in demand for ART products?
Higher reinsurance prices driven primarily by a shortage of capacity in the retrocession
market
Increased fluctuations in the financial market
Exploitation of tax and regulatory asymmetries
For providing multi year covers to securitization of risk and derivatives
None of the above

WRONG ANSWER

CORRET ANSWER:
Higher reinsurance prices driven primarily by a shortage of capacity in the retrocession
market
Explanation:
Higher reinsurance prices, driven primarily by a shortage of capacity in the retrocession market,
have led to increase in demand for ART products.
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Q 31.
Which of the following tools help in determining quality in the case of inward
reinsurance business?
Management Information System
Credit Rating
Retrocession
Foreign exchange expertise
All of the above

WRONG ANSWER

CORRET ANSWER:
Credit Rating
Explanation:
Tool of credit rating helps in determining quality in the case of inward reinsurance business.

Q 32.
As per IRDA regulation, who among the following can write inward reinsurance
business from overseas insurers?
Both life and non life insurance companies
Only general Insurance companies
Only non life insurance companies
Only life insurance companies
All of the above

CORRECT ANSWER
Explanation:
As per IRDA Regulations, all life and non-life insurers in India can write inward reinsurance
business from other domestic insurers and from overseas.

Q 33.
ABC insurer wants to protect his whole book of business. Hence he enters into an
arrangement where a single composite cover is installed for protection of its whole
business, incorporating all classes of business. This arrangement is known as
__________________.
Excess of loss
Whole account excess of loss
Umbrella excess of loss
Aggregate excess of loss
Umbrella loss

CORRECT ANSWER
Explanation:
When 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 Excess of Loss cover.

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Q 34.
Which of the following is correct with regards to catastrophe cover?
It protects the insurer against known accumulations arising out of one event.
At least one risk has to be involved in a single loss before the excess of loss is affected.
The retention is normally more than the amount retained under each individual risk.
The retention is normally less than the amount retained under each individual risk.
None of the above

CORRECT ANSWER
Explanation:
In catastrophe cover, the retention is normally more than the amount retained under each
individual risk.

Q 35.
Which of the following is correct with respect to per risk retention?
Per Risk retention can be managed through controlled and informed decisions.
The Per Risk retention is managed only through reasonable estimation of financial
consequences
The Per Risk retention relates to the number of individual risks that could be hit by
multiple events.
The per risk retention is managed by allowing a catastrophe reserve for funds to
accumulate and be available over the long term.
None of the above

WRONG ANSWER

CORRET ANSWER:
Per Risk retention can be managed through controlled and informed decisions.
Explanation:

Per Risk retention can be managed through controlled and informed decisions.

Q 36.
Which of the following statements are correct with respect to technical objectives?
The technical results of the insurer need to be destabilised by reducing fluctuations in
claims to the yearly retained account.
The risk of suffering a greater liability than permitted by the financial resources in the
event of a catastrophe must be maximised.
Concentration of risks in any one class of business or geographical area must be
reduced.
To allow a company to accept risks beyond its normal retention and so ensure that it is
placed at a serious disadvantage compared to its competitors.
None of the above

CORRECT ANSWER
Explanation:
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The correct statement with respect to technical objective is “Concentration of risks in any one
class of business or geographical area must be reduced."

Q 37.
In surplus reinsurance, a ceding insurer’s retention is known as ___________.
Line
Surplus limit
PML
Quota share
Claim

CORRECT ANSWER
Explanation:
In surplus reinsurance, a ceding insurer`s retention of a portion of the sum insured for itself is
known as a Line.

Q 38.
In 1966, the Indian Insurance Companies Association initiated the formation of
Reinsurance Pools in __________ to increase the retained premiums in the country.
Marine
Vehicle
Fire and Hull
Health
All of the above

CORRECT ANSWER
Explanation:
In 1966, the Indian Insurance Companies Association initiated the formation of Reinsurance
Pools in fire and hull to increase the retained premiums in the country.

Q 39.
Which designation will be provided to the insurance company if credit rating agency
feels that rating of the insurer may be raised, lowered, or affirmed?
Emergent
Developing
Negative
Positive
Raising

CORRECT ANSWER
Explanation:
An insurance company is designated as "developing” if the credit rating agency feels that the
rating of the insurer may be raised, lowered, or affirmed.

Q 40.
In India, who monitors the solvency margin of insurers and reinsurers as a key
measure of their financial health and business continuity?

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Duff & Phelps

IRDA
A.M. Best
Standard and Poor
NAIC

CORRECT ANSWER
Explanation:
In India, the IRDA monitors the solvency margin of insurers and reinsurers as a key measure of
their financial health and business continuity.

Q 41.
Which of the following bodies promotes foreign direct investment (FDI) to
developing countries to help support economic growth, reduce poverty and improve
people's lives by providing political risk insurance (guarantees) to the private
sector?
UNCTAD
MIGA
World bank
WTO
WHO

CORRECT ANSWER
Explanation:
MIGA promotes foreign direct investment (FDI) into developing countries to help support
economic growth, reduce poverty and improve people's lives by providing political risk
insurance (guarantees) to the private sector.

Q 42.
In case of Excess of Loss – Working (per risk), insurance protection is sought by
the ceding reinsurer for ___________
Mitigating Risk Premium
Mitigating Risk
Mitigating Excess of loss
Mitigating Proportional premium
Mitigating loss beyond its limit of retention

CORRECT ANSWER
Explanation:
In case of Excess of Loss – Working (per risk), insurance protection is sought by the ceding
reinsurer for mitigating loss beyond its limit of retention.

Q 43.
Which of the following statements is incorrect with respect to credit rating?
Credit ratings are based on information furnished by rated insurer or reinsurers or
obtained by the rating agency from other sources it considers reliable.
A credit rating is not a guarantee of an insurer's financial strength or security.
Credit ratings are a recommendation to purchase or discontinue any policy or contract
issued by an insurer or reinsurer or to buy, hold or sell any security issued by an insurer.

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Credit ratings do not refer to an insurer`s or reinsurer`s ability to meet debt obligations.
All of the above

CORRECT ANSWER
Explanation:
Credit ratings are not a recommendation to purchase or discontinue any policy or contract
issued by an insurer or reinsurer or to buy, hold or sell any security issued by an insurer.

Q 44.
Which of the following is not a credit rating agency?
Standard and Poor
A.M. Best
IRDA
Duff & Phelps
All of the above

CORRECT ANSWER
Explanation:

IRDA (Insurance Regulatory and Development Authority) is a regulatory body, and not a credit
rating agency.

Q 45.
When a reinsurer receives business as an inward retrocession, the reinsurer will
allow the ceding insurer _____________ over and above any share of the original
commission that he may pay.
Overriding commission
Brokerage
Profit commission
Flat rate commission
Additional commission

CORRECT ANSWER
Explanation:
When a reinsurer receives business as an inward retrocession, the reinsurer will allow the
ceding insurer overriding commission over and above any share of the original commission that
he may pay.

Q 46.
In case of treaty reinsurance, what is the signing rule for a reinsurance contract?
Policy has to be signed by insurance broker
Policy has to be signed by or on behalf of each party
Policy has to be signed by the reinsured
Policy has to be signed by ceding insurer
Policy has to be signed by reinsurer

CORRECT ANSWER

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Explanation:
In case of treaty reinsurance, the policy has to be signed by or on behalf of each party.

Q 47.
In India, which of the following Acts governs the law and regulation relating to use
of foreign exchange in respect of insurance and reinsurance transactions
overseas?
Income Tax Act 1961
Foreign Exchange Management Act, 2000
Companies Act 1956
Insurance Act 1938
None of the above

CORRECT ANSWER
Explanation:
In India, the Foreign Exchange Management Act, 2000 governs the law and regulation relating to
use of foreign exchange in respect of insurance and reinsurance transactions overseas.

Q 48.
Reinsurance is a contract between ______________and ___________________.
Insured and Underwriter
Insurer and Underwriter
Insurer and insured
Insurer and reinsurer
Underwriter and reinsurer

CORRECT ANSWER
Explanation:
Reinsurance is a separate contract between the insurer and the reinsurer.
Each of these contracts is independent of the other.

Q 49.
Which of the following is an example of a ‘high risk’ area due to frequent occurrence
of bush fires?
The USA
Europe
Japan
Australia
UK

CORRECT ANSWER
Explanation:
Australia is an example of an area that is categorised as high risk due to frequency occurrence
of ‘bush fires’.

Q 50.
In inward reinsurance business, why is retrocession required?
For formulating terms and condition of agreement
To enable acceptance of economical lines
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For indemnifying excess of loss

For mutual exchange of risk
None of the above

WRONG ANSWER

CORRET ANSWER:
To enable acceptance of economical lines
Explanation:
In inward reinsurance business, retrocession is required to enable acceptance of economical
lines.

Out of 50 questions 32 correct and 18 wrong.

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