Free Certification in Reinsurance Practice Questions

Sample Practice Questions

Try these 10 sample questions from the Certification in Reinsurance practice bank. Each includes the answer and explanation. Continue with the interactive practice above to review the full question set.

1. 1What is the primary subject of a reinsurance contract?

   1. A.Insurance purchased by an insurer for risks it has assumedCorrect answer: A
   2. B.Insurance purchased by an employee for personal injury
   3. C.Insurance purchased by a tenant for household belongings
   4. D.Insurance purchased by a motorist for third-party liability

   Explanation: Swiss Re states: "In essence, reinsurance is insurance for insurance companies." This supports the answer: Insurance purchased by an insurer for risks it has assumed. B is incorrect: This is direct personal injury insurance, not insurance for an insurer. C is incorrect: This is direct household insurance bought by a tenant. D is incorrect: This is direct motor liability insurance bought by a motorist.

   Reference: Swiss Re — The essential guide to reinsurance — p. 7

2. 2Which service defines a reinsurance broker's intermediary role?

   1. A.Negotiating cover between the cedant and reinsurersCorrect answer: A
   2. B.Assuming the full insurance risk in place of the cedant
   3. C.Auditing the reinsurer for its prudential supervisor
   4. D.Setting the statutory reserves of every treaty participant

   Explanation: The source states: "An intermediary who negotiates reinsurance contracts between the ceding company and the reinsurer(s)." This supports the answer: Negotiating cover between the cedant and reinsurers. B is incorrect: Assuming insurance risk is a carrier's function, not the broker's defining role. C is incorrect: A supervisory audit is not negotiation of reinsurance placement. D is incorrect: Statutory reserving is not the broker's defining intermediary service.

   Reference: Reinsurance Association of America — Glossary of Reinsurance Terms — Broker

3. 3Under the glossary's definition, what agreement is required for a novation that substitutes a new party and discharges an original party?

   1. A.Agreement of all parties to the substitutionCorrect answer: A
   2. B.Agreement of the outgoing party alone
   3. C.Agreement of the incoming party alone
   4. D.Agreement of the intermediary alone

   Explanation: The glossary states: "A novation may substitute a new party and discharge one of the original parties to a contract by agreement of all parties." This supports the answer: Agreement of all parties to the substitution. B is incorrect: Outgoing-party consent alone omits agreement by the other affected parties. C is incorrect: Incoming-party consent alone cannot discharge the original obligation by agreement of all parties. D is incorrect: Intermediary consent alone does not substitute for the contracting parties' agreement.

   Reference: Reinsurance Association of America — Glossary of Reinsurance Terms — Novation

4. 4A cedant offers a single industrial risk on a facultative basis. Before agreeing cover, what discretion does the reinsurer retain?

   1. A.It can accept or reject the individual riskCorrect answer: A
   2. B.It must accept because the cedant selected the risk
   3. C.It must accept once the original policy has been issued
   4. D.It can refuse only after the cedant has paid a claim

   Explanation: The source states: "the reinsurer retains the ability to accept or reject and individually price each risk offered by the ceding company." This supports the answer: It can accept or reject the individual risk. B is incorrect: Cedant selection alone does not bind the facultative reinsurer. C is incorrect: Issuing the original policy does not compel the reinsurer to accept. D is incorrect: The acceptance decision is available before claim payment, not only after it.

   Reference: Reinsurance Association of America — Glossary of Reinsurance Terms — Facultative Reinsurance

5. 5A quota-share treaty cedes 35% of each covered policy. A covered loss is S$240,000. With no other adjustments, how much does the reinsurer pay?

   1. A.S$84,000Correct answer: A
   2. B.S$156,000
   3. C.S$120,000
   4. D.S$204,000

   Explanation: The source states: "Losses are apportioned at the same ratio." 35% × S$240,000 = S$84,000. S$156,000 is the 65% retained share; S$120,000 assumes 50%; S$204,000 wrongly applies 85%. B is incorrect: S$156,000 is the cedant's 65% retained share, not the reinsurer's 35%. C is incorrect: S$120,000 assumes 50% sharing rather than 35%. D is incorrect: S$204,000 applies 85% rather than the stipulated 35%.

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

6. 6In reinsurance accounting, what does earned reinsurance premium represent?

   1. A.Premium attributable to expired coverage or deemed earned under the contractCorrect answer: A
   2. B.All premium invoiced regardless of the period of cover
   3. C.Only premium remaining unpaid after the due date
   4. D.Only premium held as collateral for unreported claims

   Explanation: The glossary states: "that part of the reinsurance premium applicable to the expired portion of the policies reinsured" This supports the answer: Premium attributable to expired coverage or deemed earned under the contract. B is incorrect: Invoicing does not by itself mean the related coverage has expired or premium is contractually earned. C is incorrect: Overdue premium is a receivable-status concept, not an earning basis. D is incorrect: Collateral for claims does not define earned premium.

   Reference: Reinsurance Association of America — Glossary of Reinsurance Terms — Earned Reinsurance Premium

7. 7What dispute-resolution mechanism is specified by an arbitration clause?

   1. A.Submission to a non-judicial adjudication panelCorrect answer: A
   2. B.Automatic settlement by whichever party first submits the claim
   3. C.Determination solely by the cedant's external accounting auditor
   4. D.A mandatory referral to an ordinary court without a panel process

   Explanation: The glossary states: "the parties agree to submit their disputes to a non-judicial adjudication panel rather than a court of law" This supports the answer: Submission to a non-judicial adjudication panel. B is incorrect: First submission does not confer adjudicative authority on that party. C is incorrect: An accounting auditor is not the contractual non-judicial arbitration panel. D is incorrect: Ordinary-court referral without a panel is not the arbitration mechanism described.

   Reference: Reinsurance Association of America — Glossary of Reinsurance Terms — Arbitration Clause

8. 8What risk does yearly renewable term life reinsurance generally transfer?

   1. A.Mortality riskCorrect answer: A
   2. B.Investment risk
   3. C.Policy lapse risk
   4. D.Operational risk

   Explanation: The source states: "YRT is generally thought of as “mortality only” reinsurance" This supports the answer: Mortality risk. B is incorrect: YRT is generally mortality-only rather than transfer of the policy's investment risk. C is incorrect: Lapse risk is not the generally mortality-only YRT scope described. D is incorrect: Operational risk is broader than insured mortality exposure transferred by YRT.

   Reference: Society of Actuaries — Reinsurance 101, 2019 Annual Meeting — Types of Reinsurance — YRT, slide 18

9. 9Which periodic document lists ceded premium or loss details for specific risks?

   1. A.A bordereauCorrect answer: A
   2. B.A letter of credit
   3. C.A line guide
   4. D.An arbitration award

   Explanation: The source states: "A report provided periodically by the Ceding Company detailing the reinsurance premiums and/or reinsurance losses" This supports the answer: A bordereau. B is incorrect: A letter of credit provides financial security rather than periodic risk-level premium/loss reporting. C is incorrect: A line guide sets underwriting/cession capacity rather than reporting individual transactions. D is incorrect: An arbitration award determines a dispute rather than supplying periodic cession data.

   Reference: Reinsurance Association of America — Glossary of Reinsurance Terms — Bordereau

10. 10What additional source of underwriting capacity do insurance-linked securities make available?

    1. A.Capital-market investorsCorrect answer: A
    2. B.Only the cedant's reserves
    3. C.Only the original insureds
    4. D.Only the broker's commissions

    Explanation: The source states: "Insurance-linked securities (ILS) are a means of ceding insurance-related risks to the capital markets." This supports the answer: Capital-market investors. B is incorrect: The cedant's reserves are existing internal resources rather than the additional investor source. C is incorrect: Original insureds alone are not the capital markets to which ILS transfer risk. D is incorrect: Broker commissions are remuneration rather than capital-market risk capacity.

    Reference: Swiss Re — The essential guide to reinsurance — p. 30