Free CII Reinsurance MCQ Examination (E97) Practice Questions

Sample Practice Questions

Try these 10 sample questions from the CII Reinsurance MCQ Examination (E97) practice bank. Each includes the answer and explanation. Continue with the interactive practice above to review the full question set.

1. 1A property insurer is concerned that a major storm could cause a sudden, severe fall in its capital. Which benefit of purchasing reinsurance most directly addresses that concern?

   1. A.Replacing the capital held for every retained risk
   2. B.Protecting its capital against peak loss exposuresCorrect answer: B
   3. C.Preventing storms from generating insured claims
   4. D.Converting its outstanding claims into premium income

   Explanation: Swiss Re states: "Having reinsurance contracts in place means insurers can shield their capital base against such peak exposures." Reinsurance can absorb part of the financial impact of a major storm. It does not prevent the event, replace all retained-risk capital, or turn claims into premium income.

   Reference: Swiss Re — The essential guide to reinsurance — p. 16, Reducing claims volatility

2. 2Under an obligatory reinsurance treaty, what happens when a new policy falls within the agreed scope and limits?

   1. A.The reinsurer may reject it without changing the treaty
   2. B.The cedant must obtain a fresh facultative acceptance
   3. C.Both parties must cede and accept the agreed shareCorrect answer: C
   4. D.The original policyholder must approve the reinsurance

   Explanation: The guide states that "both parties are obliged to cede or to accept any risk covered in the treaty". In-scope risks are accepted automatically on the agreed basis. Individual rejection or fresh facultative approval would contradict that obligation; the original policyholder does not approve each cession.

   Reference: Swiss Re — The essential guide to reinsurance — p. 24, Obligatory reinsurance

3. 3An insurer's treaty provides insufficient capacity for one exceptionally large industrial risk. Why can facultative reinsurance be useful for the remaining exposure?

   1. A.It automatically increases the limit of the existing treaty
   2. B.It removes the insurer's obligation under the original policy
   3. C.It obliges every treaty reinsurer to accept the extra exposure
   4. D.It permits separate cover for the additional individual riskCorrect answer: D

   Explanation: The guide describes facultative cover as "covering additional risks above and  beyond what has already been covered  by the obligatory reinsurance treaty." A separate placement can supplement treaty capacity for an individual risk. It does not amend the treaty automatically, compel treaty reinsurers or release the original insurer.

   Reference: Swiss Re — The essential guide to reinsurance — p. 23, Facultative reinsurance

4. 4An insurer wants to cede the same percentage of every policy within a defined account, including small policies. Which proportional treaty structure meets that requirement?

   1. A.A surplus treaty with a fixed retained line
   2. B.A quota share treaty with a fixed ceded shareCorrect answer: B
   3. C.A catastrophe treaty with an event retention
   4. D.A stop loss treaty with an annual loss trigger

   Explanation: Swiss Re explains that the quota share reinsurer assumes an "agreed-upon, fixed quota or percentage of all the policies". That meets the equal-percentage requirement. Surplus cessions vary with risk size relative to the retained line; catastrophe and stop loss covers respond to losses above retentions.

   Reference: Swiss Re — The essential guide to reinsurance — p. 25, Quota share reinsurance

5. 5A property insurer wants to retain the full amount of every loss up to a chosen monetary threshold per risk, and reinsure larger individual losses above it. Which structure fits that objective?

   1. A.A quota share from the first pound of every loss
   2. B.A surplus share of sums insured above a retained line
   3. C.A per-risk excess of loss above a monetary retentionCorrect answer: C
   4. D.An annual stop loss above a portfolio loss ratio

   Explanation: Swiss Re identifies per-risk excess of loss as protection "against large single losses". It directly matches retaining smaller claims while protecting individual large losses. Proportional covers share losses rather than applying a fixed loss retention, and stop loss addresses the aggregate annual result.

   Reference: Swiss Re — The essential guide to reinsurance — p. 28, Excess of loss reinsurance

6. 6When setting the retained loss level in a reinsurance programme, why should an insurer assess both available capital and liquidity?

   1. A.They determine the commission percentage on every treaty
   2. B.They show the amount of loss the insurer can withstandCorrect answer: B
   3. C.They replace the need to estimate insured exposures
   4. D.They establish the market price independently of risk

   Explanation: Swiss Re explains that maximum tolerable aggregate loss "depends on the available capital and required liquidity." Retention design should be consistent with that ability to absorb losses. Capital and liquidity do not by themselves determine commission, eliminate exposure analysis or set market prices.

   Reference: Swiss Re — The essential guide to reinsurance — p. 33, Risk tolerance

7. 7Before entering an English-law non-consumer reinsurance contract subject to the Insurance Act 2015, a cedant supplies material information in a disorganised mass of files. What additional presentation requirement must it meet?

   1. A.Disclosure may ignore organisation if all files are made available
   2. B.Disclosure must be contained entirely in one consolidated document
   3. C.Disclosure must be reasonably clear and accessible to a prudent insurerCorrect answer: C
   4. D.Disclosure is unnecessary unless the reinsurer asks specific questions

   Explanation: Section 3(3)(b) requires disclosure to be "reasonably clear and accessible to a prudent insurer". A disorganised mass of files may fail that standard. A single document is not required by section 7(1), and the pre-contract disclosure duty does not arise only when questions are asked.

   Reference: Insurance Act 2015 — section 3 — section 3(3)(b)

8. 8What operational purpose does a prompt claims-notification clause serve for a reinsurer when a loss may reach its treaty?

   1. A.It substitutes a premium adjustment for every claim
   2. B.It fixes the final settlement amount before investigation
   3. C.It removes the need for any later claims information
   4. D.It supports timely reserving and assessment of exposureCorrect answer: D

   Explanation: CII explains: "Timely notification enables the reinsurer to establish accurate reserves". Early information also supports exposure assessment and claims management. It does not predetermine the final settlement, replace a claim with premium or dispense with later information.

   Reference: CII — M97 specimen coursework assignment, explanatory answers — Answer to Question 5, p. 17, Notification of claims clause

9. 9How is Lloyd's fundamentally structured as a provider of insurance and reinsurance capacity?

   1. A.As a single insurance company accepting every risk for one account
   2. B.As a regulator that does not host any underwriting participants
   3. C.As a market in which members form syndicates to underwrite risksCorrect answer: C
   4. D.As a broker that transfers every accepted risk to external companies

   Explanation: Lloyd’s explains: "It is a market where members join together to form syndicates to insure risks." The syndicate market structure distinguishes it from a single insurer, a broking firm or a regulator without underwriting participants. No historical market-size figures are assumed.

   Reference: Lloyd’s — How Lloyd’s Works, quick guide — pp. 4–5, Market structure

10. 10Why does a products liability reinsurer need information about the jurisdictions in which the insured products are sold?

    1. A.The legal environment affects claim frequency but cannot affect severity
    2. B.The legal environment can affect liability exposure and potential awardsCorrect answer: B
    3. C.The product's physical hazards fully determine liability regardless of the legal system
    4. D.The jurisdiction of sale is irrelevant if the manufacturer is based elsewhere

    Explanation: CII identifies the proportion of business exposed to particular legal markets as "a major consideration for an underwriter", in discussing litigation and potential court awards. Jurisdiction can affect liability and severity, not just claim frequency. Physical hazards and the manufacturer’s location do not eliminate exposure to the legal systems in which products are sold.

    Reference: CII — M97 specimen coursework assignment, explanatory answers — Answer to Question 7(a), p. 23, Products liability