Free Practice Questions for IIC C11 Exam

The principle of utmost good faith (uberrima fides) is fundamental to all insurance contracts. It requires a higher standard of honesty than ordinary commercial agreements because the insurer must rely on the applicant to disclose all material facts that could affect the underwriting decision. The insured has superior knowledge of the risk, and failure to disclose material information can jeopardize the insurer's ability to assess the exposure properly.

Option B is incorrect because utmost good faith is not required inalllegal contracts—only in specific types where one party must rely heavily on the full disclosure of the other, such as insurance. Option C is partially related—breachescanlead to policy voidance—but that is a consequence, not the definition. Option D is incorrect because utmost good faith refers to the presence of elevated honesty, not the absence of negligence.

Therefore, the best explanation is A: Requires a high standard of honesty.

Prescription refers to the legally defined period during which an insured is permitted to initiate legal action to enforce a claim under the insurance contract. Once the prescriptive period expires, the insured loses the legal right to pursue the claim, even if the claim itself is otherwise valid. This protects insurers from indefinite liability and encourages timely reporting and settlement of claims.

A waiver is the voluntary relinquishment of a known right. A release is a document signed by the insured surrendering further claims, usually after settlement. A non-waiver agreement preserves the insurer’s right to investigate a claim without admitting liability. None of these terms relate to the legal time limit for bringing an action. Therefore, the correct term describing the time frame for commencing legal proceedings is prescription.

OSFI regulates federally incorporated insurers to ensure they remain solvent and financially stable so they can pay claims. One of the key regulatory tools is restricting or monitoring insurers’ investment portfolios. By controlling the types of investments insurers may purchase, OSFI aims to reduce exposure to excessive investment risks, ensuring that insurers do not jeopardize policyholder funds through speculative or volatile investments.

Option A is incorrect—OSFI’s mandate is consumer protection, not profit maximization.

Option B is incorrect because indemnification amounts depend on claims, not investment rules.

Option C is incorrect—while returns are important, OSFI’s priority is safety, not maximizing yield.

Thus, the correct purpose is D: minimizing insurers' investment loss exposures to protect policyholders and maintain financial stability.

Amanuscript wordingis a policy or endorsement crafted specifically for an individual client or an unusual risk exposure. It iscustom-writtenand negotiated between the insurer and the insured (or their broker). These wordings are used when standard forms do not adequately describe or protect a particular exposure, usually for large commercial clients, unique operations, or highly specialized risks.

Option A refers tostandardwordings, which are pre-written, commonly used forms approved by insurers or industry bodies.

Option B (chattel) refers to movable personal property, not policy wording.

Option C (treaty) refers to reinsurance agreements between insurers and reinsurers, not client-facing policy forms.

Therefore, the only option describing a custom-written policy wording isD: Manuscript.

In the structure of reinsurance practices explained inPrinciples and Practice of Insurance, aretrocessionaireis the reinsurer that accepts risk from another reinsurer. This occurs through a process calledretrocession, where a reinsurer (the retrocedent) transfers a portion of its assumed risk to another reinsurer to further spread exposure and maintain solvency stability.

The terminology is important:

Theprimary insurerissues the original policy to the insured.

Thereinsurer(cessionaire) accepts risk from the primary insurer.

When that reinsurer then cedes part of the risk again, the receiving party is theretrocessionaire.

Retrocession is essential in risk-management frameworks because it allows reinsurers to diversify exposures and avoid concentration risks from catastrophic events. Therefore, the correct term for the second reinsurer isC. Retrocessionaire.

When an organization chooses to handle losses throughborrowing, it is using debt financing—usually a bank loan or line of credit—to pay for losses instead of transferring the risk through insurance. While this may offer flexibility, it has several drawbacks. The most significant is that borrowingreduces the company’s available line of credit, limiting funds that could otherwise be used for operations, expansion, or emergencies.

This reduction in liquidity can create financial strain, especially if multiple losses occur or if interest rates rise. Borrowing also increases debt obligations, which can affect cash flow and borrowing capacity.

Option A is incorrect; special accounting is not necessarily required beyond standard debt tracking.

Option C is not inherently a disadvantage—senior management involvement is routine in risk management.

Option D is incorrect; the difficulty of borrowing is determined by creditworthiness, not by the presence of assets.

Thus,Bis the correct disadvantage.

Spacecraft liability is anextremely specialized, high-severity, low-frequency riskrequiring underwriting expertise not found in standard insurers. TheLloyd’s marketis internationally known for insuring unique, complex, and unusual risks—from satellites and spacecraft to aviation and marine exposures. Lloyd’s operates as a marketplace of syndicates, allowing multiple underwriters to participate in a single risk, making it ideal for large and unusual exposures.

A health/life insurer (B) is irrelevant; they do not underwrite commercial liability exposures.

A captive insurer (C) could theoretically insure such a risk but requires the client tocreate and fundtheir own insurance company—impractical unless they are very large and sophisticated.

Government insurers (D) generally insure auto, workers' comp, or agricultural risks—not spacecraft.

Thus the best recommendation isA: Lloyd’s Insurance Market.

In anon-proportional excess of losscontract, the reinsurer pays only the amountabove the retention (the deductible), up to its limit.

Retention =$300,000

Reinsurer’s limit =$600,000

Maximum reinsurance payout =$600,000

Now apply it to a$600,000 loss:

Cover It Insurance pays the first$300,000(its retention).

The remaining$300,000is within the reinsurer’s limit, so ZYX-Reinsurance pays$300,000.

Option A is incorrect—loss does not exceed retention, so reinsurer pays nothing.

Option B is incorrect—no reinsurance applies below $300,000.

Option D is incorrect because for a $900,000 loss, reinsurer would pay themaximum limit of $600,000, but Cover It would pay $300,000 retention plus the remaining $0? Actually total loss 900k: cover it pays 300k retention + 0 above? No, Cover It also pays any amount above reinsurance layer -> 900k minus 300k retention minus 600k limit = 0. The answer shown is still incorrect based on the numbers.

OnlyCis correctly calculated.

When more than one insurer covers the same property under policies with identical terms, the loss is often shared according to the proportion of insurance each company provides. This is commonly referred to as contribution “pro rata by limits.”

First, determine the total amount of insurance:

Insurer X: $400,000

Insurer Y: $100,000

Total insurance: $500,000

Next, determine each insurer’s percentage of the total:

Insurer X: 400,000 ÷ 500,000 = 80%

Insurer Y: 100,000 ÷ 500,000 = 20%

The total loss is $100,000, so each insurer pays its proportion of the loss:

Insurer X: 80% × $100,000 = $80,000

Insurer Y: 20% × $100,000 = $20,000

There is no deductible to adjust these amounts. Thus, Insurer X pays $80,000 and Insurer Y pays $20,000, making Option C correct.

The Institute for Catastrophic Loss Reduction (ICLR) is a research-based organization supported by the Canadian property and casualty insurance industry. Its mission is to reduce the loss of life and property caused by natural hazards by promoting scientifically grounded mitigation strategies. One of its central goals is to encourage the development of resilient buildings and communities by advocating for improved building codes, retrofitting standards, and construction methods that reduce vulnerability to severe weather events such as hurricanes, floods, wildfires, and earthquakes.

Options A and B do not reflect the ICLR's mandate; the organization does not focus on personal weather prediction or creating mandatory evacuation procedures. Option C describes a risk-financing mechanism, not risk reduction. ICLR’s true focus is loss prevention and mitigation, specifically through cost-effective, research-supported construction and community planning measures. Therefore, the correct answer is D.