Free Practice Questions for the IBABC Level 2 General Insurance License CAIB-3 Exam (2026 Updated)

Three needs that reinsurance can satisfy are:

1. Increase the insurer’s underwriting capacity.

2. Protect the insurer against large or catastrophic losses.

3. Stabilize the insurer’s loss results from year to year.

Comprehensive Explanation: A custodian includes the insured, a partner of the insured, or an authorized employee who has care and custody of the insured property. A guard, janitor or watchman is not treated as a custodian for this coverage.

A bill of lading serves as:

1. A contract of carriage between the shipper and carrier.

2. A receipt for the goods shipped.

3. A document of title to the goods.

The obligee is the party to whom the principal owes an obligation and the party that receives the protection of the surety bond.

A cedent, or ceding company, is the insurer or reinsurer that transfers part of a risk to another reinsurer.

A) A third-party cyber event is a cyber incident involving the insured that causes harm or loss to another person or organization. Example: a hacker steals customers’ personal information from the insured’s computer system.

B) An example of a third-party cyber loss is legal defence costs or damages from a customer lawsuit after a privacy breach.

Fraud is an intentional act of deception, misrepresentation or dishonesty used to obtain money, property or another benefit, or to cause another person a financial loss.

A) Charterer’s Legal Liability can protect the charterer for legal liability arising from the chartered vessel.

B) The terminal operator can be held responsible if its negligent security caused or contributed to the theft.

C) Terminal Operator’s Legal Liability insurance can protect the terminal operator against this type of liability claim.

Comprehensive Explanation: Reinsurance is a contract between the primary insurer (cedent) and the reinsurer. The original insured is normally not a party to that contract and usually has no direct involvement with the reinsurer. The primary insurer remains responsible to the insured under the original policy.