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

3/3/2021 Welcome to Pass4Sure
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.
file:///C:/Users/indian/Desktop/Welcome to Pass4Sure test 5 files.html 1/49

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

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

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.
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
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 ìnsurance 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
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

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

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
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
2 and 3
1 and 2
All 1, 2 and 3
UnAttempted
CORRECT ANSWER:
Only 1
Explanation:
Premiums credited to Èxperience 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

Cut through endorsement clause

Extension of reinsurance cover clause
UnAttempted
CORRECT ANSWER:
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
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

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

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:

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.
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

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
UnAttempted
CORRECT ANSWER:
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.
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.

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
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.

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

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:

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.

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.

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)

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
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
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

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

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.

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
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 ìntranet`. 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 Èxtranet`.
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
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:

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:
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

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:
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.
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.
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
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.

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
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

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

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
Risk Excess of loss
Catastrophe Excess of loss - Cat XL

UnAttempted
CORRECT ANSWER:
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
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
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
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

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
liability 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:
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
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.

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

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3/3/2021 Welcome to Pass4Sure

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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

Expected weather conditions

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

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Whole Account Excess of Loss cover

Q 9. Identify the the importance of 'Geographical location of operations' in reinsurance programme

Analysing exposure to various perils

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

Finite Risk programme

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

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Terms and conditions in the original insurance contract

Reinsured’s liability in the original insurance contract

Flat Rate of Commission

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Cut through endorsement clause

Working Excess of Loss

All the statements are true.

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Risk based capital

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

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Accounts flow chart

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

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

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and retrocession business from the African and Asian markets.

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

Catastrophe Excess of Loss

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

Q 43. _______ is covered under the Operative clause.

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

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

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

Facultative and Treaty Reinsurance

Treaty or facultative reinsurance business : Facultative reinsurance business will necessarily

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a) Asian Reinsurance Corporation

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Q 55. The main objective of WTO is _______ .

To actively promote free trade in services

Per Event Retention

Per Event Retention

Examples of event-based exposures can be:

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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.

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.

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