Principles of Insurance (INSC2101)
Higher Institute of Commerce and Management (HICM)
Semester: First Semester
Level: 200
Year: 2013
UNIVERSITY OF BAMENDA
HIGHER INSTITUTE OF COMMERCE AND MANAGEMENT (HI CM)
FIRST SEMESTER EXAMINATION 2012/2013 SESSION
LEVEL 100
COURSE: PRINCIPLES OF INSURANCE
TIME DURATION: 3HOURS
INSTRUCTIONS:
Answer any two questions in SET A and all questions in SET B.
SET A:
QUESTION 1:
Henrietta lives in Buea: she uses a wood bunting stove to hit her home. Although Henrietta had taken several
steps to ensure the safety of her stove, she does not tell her insurance agent about it because she knows that most
wood burning, stoves represent uninsurable hazard.
a) Explain to Henrietta why she ought to tell her insurance agent about the stove.
b) What coverage would insurer required to provide if a windstorm (covered peril) damaged Henrietta’s home?
(Assume the insurer discovered the wood burning stove while investigating the windstorm damage).
QUESTION 2:
Mr. Brown owned a warehouse in Chicago. The building would cost 400.000 FRS to replace at Today’s
prices, and Mr. Brown wants to be sure he is properly insured. He felt he would be better off to have two 250,000
FRS replacement cost property insurance policy on the ware house, because then “I would know if one of the
insurer is giving me run around”. “Any how, you have to get a levy extra mines to cover expenses if this is a fire”:
I can’t get that from one company.
a) If the building is totally destroyed by fire, how much may Mr. Brown collect without violating the concept
of indemnity?
b) What is Mr. Brown’s insurable interest? Docs it exceed the value of the building?
QUESTION 3:
If your house is destroyed by fire because of your neighbor’s negligence. Your insurer may recover from
your neighbor what is previously paid you under his right of subrogation. This prevents you from collecting twice
front the same loss. But the insurer collects premium to pay losses and then recovers from negligence person who
caused then). Isn’t that double recovering? Explain
SET B
QUESTION 1:
A newly formed company needs a sufficiently large per risk capacity to enable it to attract business, particularly
in a market that has an excess of existing capacity. However, it may not have the capital base to support the size of
acceptances required nor the experience or reputation to develop a presence in an established market. A quota share
treaty will provide operating capacity whilst, enabling the insurer to fix its net retention at a level that matches its
capital base. As the company grows, the percentage of its retention can be increased which allows a certain amount
of expansion within existing arrangements. This also provides continuity in its reinsurance security which is
important, particularly in the first few years of a company's development.
Caterpillar insurance company is a newly established company in Bamenda and they rentered into quota share
reinsurance treaty with Bulldozer Reinsurance Company. Caterpillar insurance company’s retention limit is 25%
while 75% goes to Bulldozer Reinsurance Company. Business valued at 1,000,000 was obtained by Caterpillar
insurance company and 3 % was chosen to be the premium rate. After six months 4.000.000frs loss occurred.
As a loss adjuster, you are required to calculate the following.
1. The total premium.
2. The premium share of the ceding office.
3. The sum insured share of the ceding office.
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4. The loss proportion of the ceding office.
5. The premium share of the reinsurer.
6. The sum insured of the reinsurer.
7. The loss proportion of the reinsurer.
QUESTION 2:
Private insurers provide social and economic benefits to society. Explain the following benefits of insurance to
society.
1. Indemnification of loss
2. Enhancement of credit.
3. Source of funds for capital investment accumulation
4. Loss prevention symposium
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