Compiled by : Sh. A.K.Jain, Ms.Latha Porarni, Ms.

Sunanda Singh,
Sh.H.S.Shekhawat

QUESTION PAPER REINSURANCE

FOR SCALE III & IV

1. Which of the following statements is correct?

(i) In obligatory cession of Reinsurance, the Principle of ‘Uberrima
Fides’ is of utmost importance.
(ii) In obligatory cession of Reinsurance, the reinsurer gives the
insurer automatic Underwriting power.
(iii) In obligatory cession of Reinsurance, reinsurer renounces any
possibility of refusing the risk to be accepted.
(iv) In obligatory cession of Reinsurance, the insurer is not supposed to
modify his Underwriting Policy without previous notice.
(a) (i), (ii) & (iv)
(b) (i) & (iii)
(c) (ii), (iii) & (iv)
(d) All of the above.

2. In the case of Insolvency of the ceding insurer …….

(a) The Reinsurer follows the ceding insurer’s fortune as stipulated in
Treaty.
(b) The Reinsurer only shares the insurance fate.
(c) The Reinsurer is not affected by insurer’s commercial fate.
(d) All of the above.

3. In the case of Insolvency of the Reinsurer…….

(a) The ceding insurer follows the reinsurer’s fortune.
(b) The ceding insurer can also decline the claim of his insured
proportionately.
(c) The ceding insurer is fully responsible for the total amount due to
the insured.
(d) The Reinsurer can directly pay proportionate to the original insured.

4. Reinsurance helps not to absorb new risks exposure arising from…..

(a) Foreign Exchange fluctuation.
(b) Change in Insurance method.
(c) Changes caused by the scientific development.

Page 1 of 13
(d) Regulator intervention.

5. Which of the following sentences is not correct?

(i) Under Reinsurance arrangement, the incidence of loss is widely
disbursed.
(ii) Reinsurance arrangement protect the solvency margin.
(iii) Reinsurance arrangement enables an insurer to consider unusual
proposal which he normally would not underwrite.
(iv) Reinsurance arrangement provides the insurer the benefit of
reinsurer’s expertise.
(a) (i), (iii) & (iv)
(b) (ii), (iii) & (iv)
(c) (i) & (iii)
(d) None of the above.

6.Which of the following statements is / are true?

(a) The facultative cover of a policy starts and expires with the original
policy.
(b) A cedent chooses facultative reinsurance when it does not want to be
loaded with poor risk.
(c) Cedents normally choose facultative reinsurance when there is no
automatic treaty at their disposal.
(d) All of the above.

7.Statement A: Ceding commission for Facultative obligatory treaties

are progressively less than the quota share & surplus treaty.
Statement B : Facultative obligatory treaty form is having high
exposure and low premium which is generally accepted by few.
Which statement is correct?
(a) Statement A
(b) Statement B
(c) Both Statements A & B
(d) None of the above.

8.Which of the following statement is / are true?

(i) Under a Surplus Treaty the ceding insurer decides the limit of
liability.
(ii) Under a Surplus Treaty, the ceding insurer is at liberty to retain
lesser amount than the limit.

Page 2 of 13
(iii) Under the Surplus Treaty, the surplus over and above the retention
can be allotted to one or more reinsurers.
(iv) All of the above.

9.Under the proportional form of reinsurance, the Quota share Treaty is

designed with the feature of……
(a) An automatic reinsurance.
(b) Where ceding insurer is bound to part with a fixed percentage of
every risk written by it.
(c) The same fixed percentage is applied to every risk to determine
cession.
(d) All of the above.

10.Under Excess of Loss Treaty…

(a) The Reinsurer is not liable until loss is admitted by the insurer and it
exceeds its retention limit.
(b) When the loss exceeds the retention limit, the reinsurer pays the
excess amount to the retention limit.
(c) Balance of loss over and above the total of retention and treaty limit,
reverts to the ceding insurer.
(d) All of the above.

11.Ultimate Net Loss refers to …..

(a) The all sums paid in respect of the claim plus claim expenses
minus recoveries from proportional reinsurer, salvage etc.
(b) The all sums paid in respect of claim plus claim expenses and also
the expenses relating to salaries of employees and office costs.
(c) The all sums paid in respect of the claim plus claim expenses and
recoveries from proportional reinsurer, salvage etc.
(d) None of the above.

12. Catastrophic cover protect the insurer against

(a) Unknown accumulation arising out of series of events during
Policy period.
(b) Unknown accumulation arising out of one event during Policy period.
(c) Only one risk involved in a single loss before the excess of loss is
effected.
(d) None of the above.

Page 3 of 13
13. Excess of loss insurance treaty differs from stop loss treaty
because….
(a) Under Excess of loss, the retention is fixed in absolute term i.e.
the limit of the maximum loss.
(b) Under Excess of loss, the retention is fixed in excess of loss ratio.
(c) Excess of loss treaty and stop loss treaty are of same nature.
(d) Excess of loss treaty is difficult to administer.

14. Which of the following is / are true with respect of “ Excess of loss
treaties”?
(i) All claims above a specified limit are paid by the reinsurers.
(ii) All claims below a specified limit are paid by the cedents.
(iii) All claims have to be paid by the reinsurers.
(a) (i) & (ii)
(b) (ii) & (iii)
(c) (i) & (iii)
(d) None of the above.

15. Statement A : Treaty wordings under reinsurance agreement may be

verbal.
Statement B : Treaty wording for proportional forms and non-
proportional forms are identical.
Statement C : Treaty embody the terms and conditions of the
reinsurance agreement, as agreed between ceding insurer and
reinsurer.
Which of the above statements is true?
(a) Statement A
(b) Statement B
(c) Statement C
(d) None of the above.

16. Which of the following statements is not correct relating to Slip-

Covernote-Agreement?
(i) Preparation of the Slip is the first step in the reinsurance placement
process.
(ii) The Slip preparation is done in consultation with a Broker.
(iii)The Slip is followed by a Broker’s Covernote to evidence the
placement.
(iv)None of the above.

Page 4 of 13
17. Statement A: The reinsurance agreement must be got properly
stamped and scrutinized.
Statement B : After the document has been duly stamped, and found
in order, it is signed in duplicate.
Statement C : An unstamped copy of agreement returned to the
reinsurer / ceding insurer / concerned Broker.
Statement D : Addendum to the reinsurance agreement may not be
stamped.
Which of the above statements is / are true?
(a) Statement A & B
(b) Statement B & D
(c) Statement C & A
(d) All of the above.

18. As per Indian Stamp Act, 1899…..

(a) It is obligatory to stamp a reinsurance document executed in
India.
(b) Every reinsurance document chargeable with duty executed out
of India may be stamped within 3 months after it is received in
India.
(c) Inward treaty agreement from the foreign ceding companies will
require to be stamped in India.
(d) In case of outward treaties the copies which is retained in India is
to be stamped.
Which of the above statements is / are true?
(e) Statement A & B
(f) Statement B & D
(g) Statement C & A
(h) All of the above.

19. Statement A : In the case of Marine Hull Reinsurance, Surplus

Treaties are more common.
Statement B : In the case of Marine Cargo Reinsurance, combination
of Quota Share and Surplus Treaty is frequently used.
Which of the above statements is / are not true?
(a) Statement A
(b) Statement B
(c) None of above.
(d) Both of the above.

Page 5 of 13
20. Statement A : Aviation reinsurance uses all forms of reinsurance
protection.
Statement B : Aviation reinsurance mainly dependent on Facultative
reinsurance protection.
Which of the above statements is / are true?
(a) Statement A
(b) Statement B
(c) None of above.
(d) Both of the above.

21. Statement A : Keyman Insurance protects business debts of a firm

which is dependent on a key individual for continuing its business.
Statement B : Keyman insurance protection is generally sought for
good corporate governance.
Statement C : Keyman insurance is the significant form of the Life
insurance which requires reinsurance protection.
Which of the above statements is / are true?
(a) Statement A
(b) Statement B
(c) Statement C
(d) All of the above.

22. Statement A: Reinsurance Manager not the finance Manager must

be in a position to assess his optimum retention according to liquid
assets
Statement B : It is Reinsurance Manager not the Finance manager
who sets cash loss limit
Which of the above statements is / are true?
(a) Statement A
(b) Statement B
(c) None of the above
(d)All of the above

23. Statement A : There are three types of retention namely, per event,
per risk, per portfolio.
Statement B : Retention is a combination of financial consequence
of risk and event based losses.
Which of the above statements is / are true?
(a) Statement A
(b) Statement B

Page 6 of 13
 (c) None of the above
(d)Both of the above

24. The per risk retention relates to…..

(a) Number of the individual risk that could be hit by one event.
(b) Retention per event / probable maximum number of individual
risks involved in one event.
(c) Retention fixed for collective events.
(d) Both (a) & (b) above.

25. Statement A : Anticipated Incurred claim ratio to the gross and net
account in a class are very good indices for measuring the effect of
the programme on retentions.
Statement B : Commission component of the reinsurance ceded is
critical in deciding the programme on retention.
Which of the above statements is / are true?
(a) Statement A
(b) Statement B
(c) None of the above
(d)Both of the above

26. Reciprocal reinsurance trading is not considered important to the

ceding insurer because…..
(a) It enables the ceding insurer to add to his net premium and net
profit.
(b) It enables the ceding insurer to add to his net profit.
(c) It enables the ceding insurer to ensure greater steadiness in
profits.
(d) None of the above.

27. Which of the following statements is / are true?

(i) Reinsurance involves business across the countries.
(ii) Reinsurance business is free from frauds.
(a) Only (i) above.
(b) Only (ii) above.
(c) Both (i) & (ii) above.
(d) None of the above.

28. The essence of the statement “Most of the present day treaties are
blind” is…

Page 7 of 13
 (a) Ceding company supplies no details of individual cessions to
the reinsurer.
(b) Ceding company supplies all the details of the individual
cessions.
(c) Reinsurers are not worried about the quality of the individual
cessions.
(d) The quality of the cessions is always good.

29. The conversion of receivable into cash will have an impact on…
(i) Business relationships between the reinsured and the reinsurer.
(ii) Liquidity position of the reinsured.
(iii) Solvency of the reinsured.
(a) Only (i) above.
(b) Only (ii) above.
(c) Both (i) & (ii) above.
(d) All of the above.

30. Which of the following acts is the relevant act for the reinsurance
companies’ annual accounts format in India?
(a) The IRDA Act, 1999 / Insurance Act, 1938.
(b) The Life Insurance Act, 1956.
(c) The General Insurance Act, 1971.
(d) The Companies Act, 1956.

31. Which of the following statements is / are false?

(i) Statutory accounting system is not the only accounting system to
which the insurers and reinsurers across the world are subjected.
(ii) Statutory accounting is only accounting system to which the insurers
and reinsurers across the world are subjected.
(a) Only (i) above.
(b) Only (ii) above.
(c) Both (i) & (ii) above.
(d) None of the above.

32. Which of the following statements is / are true?

(a) The facultative cover of a policy starts and expires with the
original policy.
(b) A cedent chooses facultative reinsurance when it does not want
to be loaded with poor risk.

Page 8 of 13
 (c) Under facultative reinsurance both cedent and the reinsurer have
an option to accept or reject.
(d) All of the above.

33. Why the concept of retention important to the underwriter.

(i)Because it helps the underwriter to determine the amount of
reinsurance cover required.
(ii)It helps the underwriter to know about the accumulation of risks.
(iii)To ensure that the insurance company is not exposed to
unacceptable level of losses.
(a) Only (ii) above.
(b) Both (i) & (ii) above.
(c) Both (ii) & (iii) above.
(d) All of the above

34. Which of the following statements is / are true?

(a) The facultative cover of a policy starts and expires with the
original policy.
(b) A cedent chooses facultative reinsurance when it does not want
to be loaded with poor risk.
(c) Under facultative reinsurance both cedent and the reinsurer have
an option to accept or reject.
(d) All of the above.

35. In what circumstances, a reinsurer cannot replace an aircraft?

(a) When the reinsurance is provided on reinsured value basis.
(b) When the reinsurance is provided on the agreed value basis.
(c) When the reinsured value is very high.
(d) Both (a) & (b) above.

36. Which of the following statements are true of the underwriting

pools?
(a) Collections need to be made from the pool managers.
(b) Broker records are usually not maintained in detail.
(c) Underwriting pool is often a source of disputes as it leads to a
slowdown in the collection proceeds.
(d) Both (b) & (c) above.

37. Regional Reinsurance Companies can retrocede their business by

means of….

Page 9 of 13
 (a) Proportional Covers.
(b) Non-proportional covers.
(c) Inward reinsurance accounts.
(d) All of the above.

38. Which of the following is true with “follow the fortunes” Clause?
(a) The reinsurer will share the insurance fortunes of the
company as expressed in the reinsurance contract.
(b) The reinsurer will pay the claims notwithstanding the terms and
conditions of the contract.
(c) The reinsurer will not share the fortunes of the company whether
expressed in the contract or not.
(d) It is frequently placed in the facultative certificate.

39. An underwriter should try to write maximum number of risks during

a particular period. In this context which of the following statement
is true?
(a) Only quantity is important.
(b) Both quantity and quality is important but quantity should be
given priority.
(c) Both quantity and quality is important but quality should be
given priority.
(d) Both quantity and quality are equally important.

40. The companies to which license is sold by reinsurance companies to

participate in their business are called…
(a) Departments of reinsurance companies.
(b) Reinsurance pools.
(c) Front companies.
(d) Managing general agent.

41. The insurance companies formed by large industrial and commercial

establishments to fulfill the insurance needs of their parent
companies are called…
(a) Subsidiary companies.
(b) Captives
(c) RRCs
(d) SRCs

Page 10 of 13
42. High exposure risk like Petrochemicals explosives are to be
reinsured under……
(a) Facultative arrangement.
(b) Combination of Facultative and excess of loss cover.
(c) Stop loss cover
(d) Either of the (a) & (b) above.
43. Setting up the appropriate retention is essential because…
(a) Setting of low retention will pass on the large part of premium to
reinsurers
(b) Setting a high retention may expose to high losses when claim
occurs
(c) Setting of appropriate retention benefit the ceding insurance
company in earning the good part of reinsurance commission.
(d) All of the above
44. Which of the factors is not influencing the retention limit.
(a) The company’s Assets
(b) The company’s capital / net worth
(c) The Availability capital & free reserves
(d) None of the above

45. The usual schedule of retention fixed for property insurance is based
on..
(a) Location / Separation.
(b) Class of construction & Fire protection.
(c) Process carried on.
(d) All of the above.

46.Profit commission is allowed by the reinsurer when….

(a) The insurance commission is nominal.
(b) The insurance commission is on higher side.
(c) A treaty results into profit.
(d) When the reinsurer earns a profit.

47.Which of the following statement is correct:

(i) Quota Share & Surplus method are often combined with each other
to protect a particular class of insurance.
(ii) Under Quota Share and Surplus combined, the reinsurance
protection is first provided by a Quota Share Treaty then by
Surplus Treaty.

Page 11 of 13
(iii) Under Quota Share and Surplus combined, the reinsurance
protection is first provided by a Surplus Treaty then by Quota
Share Treaty.
(iv) Under Quota share and Surplus combined the ceding insurer does
not keep two retentions one under each treaty.
(a) (i) , (ii) & (iv)
(b) (i), (iii) & (iv)
(c) None
(d) All of the above

48.Statement A: Non proportional treaties do not protect risk exposure

but protect loss .
Statement B: The insurer does not cede risk.
Which of the above statements is / are correct?
(i) Statement A
(ii) Statement B
(iii) Both the statements
(iv) None of the above.

49.Statement A : Under Fire Insurance absence of Facultative Excess of

Loss, reinsurance arrangement is to limit commitment on a single risk.
Statement B : A working risk excess of loss treaty as an alternative
to proportional treaty.
Which of the above statements is / are true?
(e) Statement A
(f) Statement B
(g) None of above.
(h) Both of the above.

50.Statement A : A catastrophe excess of loss cover to protect against

accumulation losses from one event.
Statement B : A stop loss treaty to protect income against unusually
high frequency of losses in a year.
Which of the above statements is / are true?
(i) Statement A
(j) Statement B
(k) None of above.
(l) Both of the above.

Page 12 of 13
Page 13 of 13