Deck 20: Bonding,Crime Insurance and Reinsurance

Question 1

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 1

C

Question 2

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 2

A

Question 3

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 3

D

Question 4

Which of the following is an example of a judicial bond?

A)bonding a construction firm for performance
B)bond to allow a defendant to appeal a legal decision
C)bonding the treasurer of the city you live in
D)bond to make sure tax collections are paid

Question 5

In reinsurance,the primary insurer is also known as the:

A)retrocessionaire
B)first layer reinsurer
C)ceding company
D)excess reinsurer

Question 6

Facultative reinsurance is:

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

Question 7

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

Question 8

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

Question 9

The parties to a suretyship contract are:

A)principal, agent
B)attorney in fact, surety, obligee
C)surety, principal, obligee
D)obligee, surety, trustee

Question 10

Which of the following is typically not covered in crime insurance?

A)theft
B)robbery
C)burglary
D)embezzlement

Question 11

When a primary insurer "cedes" coverage to a reinsurer,the process is called:

A)reinsurance
B)automatic coverage
C)retrocession
D)cession

Question 12

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

Question 13

The City of Atlanta requires Rick,a construction expert hired to build a new town hall,to purchase a bond guaranteeing his performance on the project. In this bond,Rick is the:

A)Principal
B)Obligee
C)Surety
D)Insured

Question 14

Which of these would be of least interest to a surety when underwriting a contract bond?

A)the contractor's financial statements
B)the contractor's three previous declarations of bankruptcy
C)the contractor's previous criminal convictions, all for felonies, but unrelated to construction contracting
D)the employee benefits the contractor provides for its workers

Question 15

The main difference between fidelity bonds and crime coverage is:

A)fidelity bonds cover inside dishonesty while crime covers outside dishonesty
B)fidelity bonds are not insurance, but crime coverage is
C)fidelity bonds cover both internal and external crimes, while crime insurance only protects against crimes caused by outsiders
D)fidelity bonds require collateral and crime coverage does not

Question 16

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

Question 17

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 Uniteds 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

Question 18

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

Question 19

All the following are arguments that surety bonding is not the same as insurance except:

A)three parties in the surety bonding contract instead of two for insurance
B)fraud on the part of the principal does not relieve an insurer of liability under a bond, whereas it does relieve the insurer of liability in an insurance contract
C)the surety bonding contract is only lending financial backing
D)both the bonding contract and insurance contract are issued by licensed insurance companies

Question 20

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

Question 21

Miika is hired by the City of Poseidon to construct a new public swimming pool. The city requires Miika to purchase a bond guaranteeing her performance on the construction project. In this bond,the city is the:

A)Principal
B)Obligee
C)Surety
D)Insured

Question 22

Judicial bonds are often used to guarantee results in cases involving estates and trusts.

Question 23

What is the difference between a surety bond and a fidelity bond?

Question 24

Pro?rata reinsurance determines the reinsurers share of losses in a different manner than excess of loss reinsurance.

Question 25

What is the difference between the crimes of theft,robbery and burglary?

Question 26

Catastrophe reinsurance can be described as a form of excess of loss reinsurance.

Question 27

Fraud by the principal against the obligee generally voids a surety bond.

Question 28

When a reinsurer cedes coverage to another reinsurer,it is called retrocession.

Question 29

Rusty is arrested in Manhattan. He calls Saul's Bonding company to post the $25,000 bond required for his release from jail. In this situation,Saul's Bonding is the:

A)Principal
B)Obligee
C)Surety
D)Insurer

Question 30

In reinsurance,the reinsurer is also known as the "ceding" company.

Question 31

The surety is bound to perform,and pay on behalf of the obligee,if the obligee fails to perform as promised.

Question 32

Pro?rata reinsurance coverage may be either facultative or treaty.

Question 33

Reinsurance transactions do not occur in life insurance.

Question 34

What is the difference between pro?rata reinsurance and excess of loss reinsurance?

Question 35

The principal in a surety contract owes a duty of performance to the obligee.

Question 36

List some of the reasons why insurance companies engage in the reinsurance transaction.

Question 37

Explain the need for surety bonding. How does it work?