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xii M97/February 2018 Reinsurance

Chapter 12 self-test answers

1. Ceding insurers provide cover in their marine departments for risks that are incidental to those
encountered at sea, such as road, rail and air journeys undertaken to, or from, a sea port.
2. Freight is the charge incurred by a cargo-owner or shipper for the transportation of goods or
commodities. It is an insurable item because if cargo is lost or damaged someone will have to stand
the loss of the cost of carriage.
3. Trading in commodities is responsive to changes in market conditions so, for example, if the price of
scrap metal increases due to a world shortage or an increase in demand, any relevant cargo could
dramatically rise in value before arriving at the port of destination.
4. Static property situated at sea, such as drilling rigs and platforms, is especially susceptible to
damage by weather-related risks and so reinsurers are interested in the ability of property reinsured
to withstand, for example, the effect of high winds, hurricanes and cyclones.
5. The sum insured as stated will be paid or a replacement aircraft will be provided if the sum needed
does not exceed the insured value.
6. AVN 61 is the agreed value clause that applies to total losses, but not to partial losses.
7. The no claim bonus would be allowable in the event that the reinsurance arrangement is renewed
with the same reinsurer.
8. Surplus is unsuitable because the values of aircraft covered differ so significantly that the different
cession amounts required would represent too great an administrative burden.
9. Possible reasons could be:
• failure to exercise reasonable care in product design;
• negligence in material selection;
• shortcomings in construction or subsequent testing.
10. A benefit policy pays out an agreed sum on the occurrence of a defined event without reference to Reference copy for CII Face to Face Training
the size of any financial loss actually suffered by the claimant. A contract of indemnity, by contrast,
will not pay out more than the extent of the financial loss suffered.
11. The reinsurer may have participations on two satellites whose launch schedules are changed and
which are unexpectedly fired into space on the same launch vehicle.