Reinsurance Question Paper

Reinsurance

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2008

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2008/2009
FIRST SEMESTER EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE

BMS 312: REINSURANCE

DATE: _TUESDAY 2ND DECEMBER 2008___ TIME: 2.00 P.M. – 4.00 P.M.

INSTRUCTIONS:
? Attempt question one (COMPULSORY) and any other TWO.
? Start each question on a new page.
? Marks awarded for proper explanation and use of appropriate examples

Question One
(a)
Quota Share is an obligatory ceding treaty. Reinsurance without Quota Share is like a public vehicle without passengers.
Required:
(i)
Using appropriate examples discuss the specific uses of the Quota Share facility in reinsurance practice.[10 marks]
(ii)
What are its advantages?[5 marks]

(b)
Discuss the formation of a reinsurance contract along the following lines:

(i)
Placing information and disclosure. [4 marks]

(ii)
Duration and extent of the duty of utmost good faith. [4 marks]

(iii)
Contractual documents and certainty. [7 marks]

Question Two
(a)
Rating is a key determinant of profitability in a reinsurance arrangement. As a prospective reinsurer, what will you consider when making decision during a rating process?
(b)
What are the financial and economic implications of reinsurance? [8 marks]

Question Three

XYZ insurance company has worked hard in the area of marketing and structuring for the
last two years. Their efforts have started paying back and they are having a good
business experience at the time. The company’s head of risk in his report informed the
company authorities that there was need to reinsure the risks written.
Required:
(i)
Why should XYZ company give a way its hard earned business to another
company in the name of reinsurance? [10 marks]
(ii)
From the risk manager’s report Facultative reinsurance was proposed a only among other types of reinsurance. Clearly explain what you understand by facultative reinsurance. When is it appropriate to use Facultative reinsurance?
[10 marks]

Question Four

(a)
How does a reinsurance broker acquire business?[5 marks]
(b)
Retention is very important in the success of a reinsurance business. Explain its
role in the business.[5 marks]
(c)
Discuss Facultative reinsurance and explain its disadvantages.
[10 marks]

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