Insurance MCQ

Professional reinsurance companies: A) engage only in reinsurance transactions B) make up only a small part of the reinsurance market C) are located only in the United States D) also act as primary insurers Answer: A

In reinsurance, the primary insurer is also known as the: A) retrocessionaire B) first-layer reinsurer C) ceding company D) excess reinsurer Answer: C

United Insurance Company insures Travelco for fire insurance. United reinsures 40% of this exposure with Promises Reinsurance company on a pro-rata basis. If a $400,000 insured loss occurs at Travelco, Promises Reinsurance will pay United: A) $0 B) $400,000 C) $160,000 D) $240,000 Answer: C

United Insurance Company insures Travelco for fire insurance. United reinsures part of the exposure with Promises Reinsurance Company on an excess of loss basis, with United's retention loss level equal to $150,000. In this instance, assuming a $400,000 insured loss, Promises will pay to United: A) $0 B) $100,000 C) $150,000 D) $250,000 Answer: D

When a primary insurer "cedes" coverage to a reinsurer, the process is called: A) reinsurance B) automatic coverage C) retrocession D) cession Answer: D

Pro-rata reinsurance: A) commits the reinsurer to pay part of a claim, but only after the primary insurer's coverage has been completely exhausted B) is distinguished by very high retention amounts C) means losses, premiums and expenses are divided proportionately by the primary insurer and the reinsurer D) is only sold by alien reinsurers, and then only at very high rates Answer: C

When a $1 million insured loss occurs and $300,000 of the loss is reinsured, the policy holder of the primary company will receive: A) $1 million from the primary company B) $1,000,000 from the primary insurer and $300,000 from the reinsurer C) $700,000 from the primary insurer and $300,000 from the reinsurer D) fifty percent of the loss from each company Answer: A

Which of the following is not a valid reason to reinsure an exposure? A) To make insured exposures similar in dollar size B) To provide the insured access to Lloyd's of London C) To buy services from the reinsurer D) To allow agents to be more competitive Answer: B

If Fidelity Reinsurance agrees to reinsure all autos that meet the underwriting rules specified in the contract with the primary insurer, this type of arrangement is: A) an automatic treaty B) individually negotiated C) excess of loss D) facultative Answer: A

Which of the following is not a type of reinsurance arrangement? A) Facultative reinsurance B) Treaty reinsurance C) Pro-rata reinsurance D) Cooperative reinsurance Answer: D

Facultative reinsurance is: A) automatic, on a treaty basis B) always revocable for first 30 days C) arranged separately for each new exposure D) placed with an alien insurer Answer: C

Pro-rata reinsurance means: A) losses, premiums, and expenses are divided proportionately between the primary insurer and reinsurer B) reinsurance is automatic C) coverage is available at market rates D) reinsurance is layered horizontally after the primary's retention Answer: A

ET Insurance Company cedes to MJ Insurance Company $60,000 of a $100,000 exposure on an excess of loss basis. A loss occurs for $60,000. A) MJ pays $36,000; ET pays $24,000. B) MJ pays $20,000; ET pays $40,000. C) MJ pays $40,000, ET pays $20,000. D) MJ pays $30,000; ET pays $30,000. Answer: B

Which of the following pieces of information would be the LEAST useful to a property insurance underwriter? A) Age of the property owner B) Age of the property C) Use of the property D) What the surrounding properties are like Answer: A

Simpson is an employee of United of Nowhere Insurance. He is also an agent for them. Based on these facts, what type of insurance company MUST United of Nowhere be? A) Direct writer B) Life and health C) Stock D) Property and casualty Answer: A

In 2004, the attorney general of New York accused insurance brokers of: A) poor financial condition that could lead to insolvency B) bid rigging C) covering up investments in illegal securities D) all of the above Answer: B

In 2004, insurance brokers in New York were accused of violating a duty to their clients (insurance buyers). What was that duty? A) Loyalty to the buyer B) No self-dealing at the buyer's expense C) Full disclosure to the buyer about the insurer's financial condition D) Full disclosure of all the broker's investment interests in insurers Answer: B

At the present, most insurance sold over the Internet is: A) illegal B) personal lines coverage C) small business coverage D) expensive Answer: B

Quaniqua is an insurance agent who sells the products of over 20 different insurance companies. What type of agent is she? A) Exclusive B) Direct-writing C) Independent D) Soliciting Answer: C

The MIB is most helpful to which of the following professionals? A) Life insurance agent B) Life insurance underwriter C) Property insurance agent D) Secret defenders of the galaxy Answer: B