Sunshine Joy R.

Gino
BSMA 3102

Module 9 Insurance Contracts

MULTIPLE CHOICE: THEORY/PROBLEMS

1. Mr. Pyromaniac obtained two fire insurances for his house. During the year, Mr.
Pyromaniac’s house was burned. The legal principle which prohibits Mr. Pyromaniac
from relaxing and just watch the house burn is
a. Principle of proximate cause c. principle of contribution
b. Principle of loss minimization d. principle of indemnity

2. SKEPTIC DOUBTFUL Co. obtained fidelity bond for its cashier. During the year, the
cashier embezzled funds of SKEPTIC. The legal principle which prohibits SKEPTIC
from directly claiming compensation from the cashier is
a. Principle of subrogation c. principle of contribution
b. Principle of loss minimization d. principle of indemnity

3. When a loss is caused by more than one loss events, the closest cause, not ​the
furthest cause, is taken into consideration when determining the extent of the
insurer’s liability. This is an application of which legal principle of insurance?
a. Principle of proximate cause c. principle of contribution
b. Principle of loss minimization d. principle of indemnity
Use the following information for the next two questions:
Entity A obtains life insurance for its key employee from Entity B (an insurance
company). Entity B cedes the insurance contract with Entity A to Entity C, another
insurance company.
4. The contract between Entity A and Entity B is
a. direct insurance contract c. reinsurance contract
b. indirect insurance contract d. retrocession

5. How should Entity B account for the insurance contract with Entity C?
a. using the general model
b. using the modified version of the general model applicable for reinsurance
contracts held
c. using the modified version of the general model applicable for onerous insurance
contracts
d. using the model applicable for onerous insurance contracts
e. any of these as a matter of accounting policy choice

Use the following information for the next three questions:

Entity A, a manufacturing entity, obtains insurance against product liability from Entity B,
an insurance company. Entity B then cedes the insurance contact with Entity C, another
insurance company.

6. How does Entity B account for the insurance contract with Entity A?
a. General model
b. Premium Allocation Approach
c. a or b
d. Not accounted for under PFRS 17

7. How does Entity C account for the insurance contract ceded by Entity B?
a. General model
b. Premium Allocation Approach
c. a or b
d. Modification to general model for reinsurance contracts held

8. How does Entity B account for the insurance contract ceded to Entity C?
a. General model
b. Premium Allocation Approach
c. a or b
d. Modification to general model for reinsurance contracts held

9. The "premium allocation approach" cannot be applied to which of the following

insurance contracts?
a. insurance contracts issued
b. reinsurance contracts issued
c. reinsurance contacts held
d. insurance contracts with significant variability in their fulfillment cash flows​.

10. The unearned profit from a group of insurance contracts is referred to under PFRS
17 as
a. fulfillment cash flows.
b. contractual service margin.
c. onerous contracts.
d. discretionary participation feature.

Answers:
1. C
2. D
3. A
4. C
5. E
6. B
7. D
8. A
9. D
10. B