4 - Market Security Flashcards
What is a solvency margin?
The amount by which assets exceed liabilities.
What constitutes a liability in insurance?
Paid claims, unpaid claims, reinsurance and general costs associated with running a business.
What constitutes an asset in insurance?
Premiums, investment income and buildings
What is the main aim of Solvency II?
Ensure that insurers are there to pay their policyholders’ claims.
What are the three pillars of Solvency II?
- Quantitative requirements
- Supervisory review
- Disclosure
Under Solvency II’s quantitative requirements, what is the Solvency Capital Requirement (SCR)?
The AMOUNT of assets available in excess of its liabilities.
Under Solvency II’s supervisory review, what is the Own Risk and Solvency Assessment (ORSA)?
The internal review carried out by insurers to assess and manage their risk.
Who regulates Solvency II?
EU - EIOPA
UK - PRA
What are the three stages of the Lloyd’s chain of security?
1st - premium funds
2nd - member’s funds, permitting them to participate in market
3rd - central fund, topped up with contribution from every premium in market
What do ratings agencies provide?
Published gradings for insurers which outline their financial strength and reliability
If an insurer’s eating drops but is still used by a broker, in what situation can the broker be liable for negligence?
If the rest of the market was NOT downgraded at the same time as the individual insurer’s downgrade
What is the concept of IBNR (incurred but not reported)?
Claims that are not yet known but need to be factored into overall reserve calculations.
What is meant by counterparty risk?
The risk that a party does not pay you what they owe
What are the four objectives of Solvency II?
- Better regulation
- Deeper integration of EU market
- Policyholder protection
- Improved competitiveness
How would you best describe liquidity risk?
Having enough assets but they are not easily accessible
