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Key Facts: CII M97 Exam

30 credits

CII Level 4 Diploma unit value

CII M97 Unit Specification

50 hours

Recommended study duration

CII M97 Unit Specification

100

Original practice questions in this bank

OpenExamPrep

CII M97 Reinsurance is a 30-credit Level 4 Diploma unit. It assesses proportional reinsurance (Quota Share, Surplus lines, cessions), non-proportional reinsurance (Excess of Loss layers, attachment points, reinstatements), contract clauses, and claims recoveries. Fee ~£200-£300, ~50 hours study time. Disclose: The 100 local MCQs in this practice bank are an English-language study adaptation for revision and do not replace official CII coursework or exam sittings.

Sample CII M97 Practice Questions

Try these sample questions to test your CII M97 exam readiness. Each question includes a detailed explanation. Start the interactive quiz above for the full 100+ question experience with AI tutoring.

1What is the primary commercial function of reinsurance for a primary insurance company?

A.To completely eliminate the need for primary insurers to hold regulatory solvency capital.

B.To transfer insurance risk to enable the primary insurer to increase underwriting capacity and stabilize earnings.

C.To issue insurance policies directly to commercial policyholders on behalf of reinsurers.

D.To guarantee that policyholders receive dividend payouts regardless of insurer loss experience.

Explanation: Reinsurance allows primary insurers to spread risk, protect their balance sheets against catastrophic losses, smooth underwriting results, and write larger risks or greater volumes than their capital base would otherwise permit.

2In a standard reinsurance arrangement, what is the legal relationship between the original insured policyholder and the reinsurer?

A.The insured has direct privity of contract with the reinsurer and can sue the reinsurer directly for claim payments.

B.The reinsurer becomes a co-insurer of the original risk jointly liable with the primary insurer.

C.There is no privity of contract between the original insured and the reinsurer; the insurance and reinsurance contracts are legally distinct.

D.The reinsurer assumes full legal responsibility for primary policy administration and claims handling.

Explanation: Under English law, the principle of privity of contract dictates that the original insured is not a party to the reinsurance contract. The primary insurer remains solely liable to the insured, while the reinsurer is liable only to the primary insurer.

3Which entity acts as an intermediary representing the ceding insurer to negotiate terms and place reinsurance in the market?

A.Direct reinsurer

B.Retrocessionaire

C.Reinsurance broker

D.Managing general agent (MGA)

Explanation: A reinsurance broker acts as an agent of the ceding insurance company (reinsured) to structure, negotiate, and place reinsurance cover with reinsurers in exchange for brokerage commission.

4What is the term given to a transaction where a reinsurer cedes a portion of its accepted reinsurance risk to another reinsurer?

A.Fronting

B.Retrocession

C.Co-insurance

D.Subrogation

Explanation: Retrocession is the process by which a reinsurer (the retrocedant) transfers part of its assumed reinsurance risks to another reinsurer (the retrocessionaire).

5Which statement accurately describes Facultative Reinsurance?

A.It is an obligatory contract covering an entire portfolio of policies automatically.

B.It is negotiated on an individual risk basis, where the ceding insurer is free to offer and the reinsurer is free to accept or decline.

C.It only applies to catastrophic non-proportional loss layers.

D.It requires annual aggregate financial audits before claims can be settled.

Explanation: Facultative reinsurance is transactional and risk-specific. Each individual policy/risk is submitted separately; the reinsurer has full discretion to accept, modify terms, or reject the risk, and the ceding company is not obliged to cede.

6Under a Treaty Reinsurance agreement, what are the primary obligations of the ceding insurer and the reinsurer?

A.The ceding insurer must submit each individual risk for manual approval, while the reinsurer retains discretion to reject risks.

B.The ceding insurer is obliged to cede all risks falling within the agreed treaty scope, and the reinsurer is obliged to accept them.

C.The ceding insurer pays no reinsurance premium until a major catastrophe loss occurs.

D.The reinsurer handles all policyholder customer service inquiries directly.

Explanation: Treaty reinsurance is obligatory: the ceding insurer agrees to cede and the reinsurer agrees to accept all risks that conform to the pre-agreed terms, class limits, and underwriting guidelines set out in the treaty.

7Under Solvency II regulations in the UK and Europe, how does effective reinsurance coverage impact a primary insurer's Solvency Capital Requirement (SCR)?

A.It increases the SCR because reinsurance introduces additional operational complexity.

B.It lowers the SCR by transferring underwriting risk, thereby reducing the net capital required to absorb extreme losses.

C.It has zero impact on SCR because Solvency II only evaluates gross premiums written.

D.It converts the primary insurer's SCR into an immediate cash grant from the PRA.

Explanation: Reinsurance acts as a risk mitigation technique under Solvency II. By transferring net risk exposure to creditworthy reinsurers, the primary insurer reduces its underwriting risk profile, which directly reduces its Solvency Capital Requirement (SCR).

8How does the UK Insurance Act 2015 affect the ceding insurer's duty when placing a reinsurance contract?

A.It abolishes all disclosure duties between ceding insurers and professional reinsurers.

B.It requires the ceding insurer to make a 'duty of fair presentation of the risk', disclosing every material circumstance known or that ought to be known after reasonable search.

C.It transfers the disclosure burden entirely to the reinsurance broker, immunizing the ceding company.

D.It mandates that reinsurance contracts are non-binding unless approved by a High Court judge.

Explanation: Under the Insurance Act 2015 (which applies to non-consumer insurance contracts including reinsurance), the ceding insurer must make a fair presentation of the risk. This requires disclosing material circumstances in a clear and accessible manner following reasonable search.

9What is a 'cut-through clause' in a reinsurance context?

A.A clause allowing the reinsurer to terminate the treaty with 24 hours notice.

B.An endorsement permitting an original insured or named third party to claim payment directly from the reinsurer in specified events (such as ceding insurer insolvency).

C.A rule that automatically cuts off loss liability after 12 months.

D.A clause that splits ceding commissions equally between broker and insurer.

Explanation: A cut-through (or direct access) clause provides a contractual exception to privity of contract, allowing the original insured (or a mortgagee/lender) to receive claim payments directly from the reinsurer if the primary insurer becomes insolvent or defaults.

10What is a major advantage of Facultative Obligatory (Fac/Oblig) reinsurance for the ceding insurer?

A.The ceding insurer has the option but not the obligation to cede risks, while the reinsurer is obliged to accept any risk ceded that meets treaty criteria.

B.Both insurer and reinsurer are strictly bound to cede and accept every single risk written by the insurer.

C.The reinsurer sets the primary retail insurance rates directly for commercial clients.

D.It eliminates all ceding commissions and administrative costs.

Explanation: Facultative Obligatory agreements give flexibility to the ceding insurer (facultative choice to cede individual risks), while binding the reinsurer (obligatory acceptance) provided the risk fits defined parameter boundaries.

About the CII M97 Exam

CII M97 Reinsurance is a 30-credit Level 4 Diploma unit. It covers reinsurance principles, market functions, facultative vs treaty methods, proportional reinsurance (Quota Share and Surplus), non-proportional reinsurance (Excess of Loss and Stop Loss), contract wording clauses, pricing mechanics, and claims recoveries. The 100 local MCQs provided here are an English-language study adaptation for practice and do not replace required written coursework assignments or official CII exam sittings.

Assessment

Mixed assessment: 50 compulsory multiple-choice questions in official sitting plus coursework assignments. This practice bank provides 100 original practice MCQs.

Time Limit

60 minutes for official MCQ component

Passing Score

Nominal pass mark of 70% for MCQ component; satisfactory coursework assignments

Exam Fee

£200 - £300 (depending on CII membership status) (Chartered Insurance Institute (CII))

CII M97 Exam Content Outline

20%

Reinsurance Principles & Market Function

Functions of reinsurance, facultative vs treaty methods, market structure, buyers, reinsurers, brokers, security rating, and capital relief.

30%

Proportional Reinsurance (Quota Share & Surplus)

Quota share contracts, line guides, surplus treaty mechanics, retention lines, cessions, ceding commission, profit commission, and account calculations.

30%

Non-Proportional Reinsurance (Excess of Loss & Stop Loss)

Working XOL, Catastrophe XOL, Stop Loss/Aggregate XOL, attachment points, policy limits, reinstatements (pro-rata tantum/temporis), and burning cost pricing.

20%

Reinsurance Contract Clauses & Claims

Follow the fortunes, claims cooperation, claims control, ultimate net loss (UNL), hours clause, arbitration, insolvency clause, and dispute settlement.

How to Pass the CII M97 Exam

What You Need to Know

Passing score: Nominal pass mark of 70% for MCQ component; satisfactory coursework assignments
Assessment: Mixed assessment: 50 compulsory multiple-choice questions in official sitting plus coursework assignments. This practice bank provides 100 original practice MCQs.
Time limit: 60 minutes for official MCQ component
Exam fee: £200 - £300 (depending on CII membership status)

Keys to Passing

Complete 500+ practice questions
Score 80%+ consistently before scheduling
Focus on highest-weighted sections
Use our AI tutor for tough concepts

CII M97 Study Tips from Top Performers

1Practise Surplus treaty line calculations: know how retention lines determine the treaty capacity and cession percentages for different sum insured values.

2Master Excess of Loss layer calculations including attachment points, layer limits, Ultimate Net Loss (UNL), and reinstatement premium calculations.

3Learn key contract clauses: understand the operational impact of the Hours Clause in Cat XOL treaties and the distinction between Claims Cooperation and Claims Control clauses.

Frequently Asked Questions

What is the assessment format for CII M97?

CII M97 is assessed via mixed assessment: written coursework assignments plus an online multiple-choice examination.

Are these official CII M97 practice questions?

No. These are original practice questions created by OpenExamPrep as an English-language study adaptation to help candidates test their knowledge of the M97 syllabus.

100+ Free CII M97 Practice Questions

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