4. Market Security Flashcards
What does solvency mean?
Solvency means having more assets than liabilities.
Which three items comprise the right-hand side of the simple solvency calculation, opposite premiums?
a. Claims, experts’ fees and reinsurance costs.
b. Claims, operating costs and reinsurance costs.
c. Reinsurance costs, insolvency risks and claims.
d. Operating costs, salaries and PRA levies.
b. Claims, operating costs and reinsurance costs.
What is Solvency II?
Solvency II is a pan-European solvency regime which operates across all EU Member States.
What are the aims of Solvency II?
- better regulation;
- deeper integration of the EU insurance market;
- enhanced policyholder protection; and
- improved competitiveness of EU insurers.
What are the three pillars of Solvency II?
Quantitative requirements, supervisory review and disclosure.
What is meant by the concept of IBNR?
a. Claims that are known about but are holding nil reserve.
b. Claims that are not yet known about but need to be factored into overall reserve calculations.
c. Claims that are likely to become total losses but are not reserved as such yet.
d. Claims that have been notified but are likely to go away again.
b. Claims that are not yet known about but need to be factored into overall reserve
calculations.
What is meant by counterparty risk?
a. The risk that a business partner does not pay you what they owe.
b. The risk that a co-defendant in a liability claim does not pay their share of the
liability.
c. The risk that a co-insurer goes out of business.
d. The risk that your liabilities are greater than your assets.
a. The risk that a business partner does not pay you what they owe.
Which of these is NOT one of the four objectives of Solvency II?
a. Better regulation.
b. Enhanced policyholder protection.
c. Improved competitiveness.
d. Improved profitability.
d. Improved profitability.
Which of these is NOT one of the three pillars of Solvency II?
a. Quantitative requirements.
b. Supervisory review.
c. Qualitative requirements.
d. Disclosure.
c. Qualitative requirements.
How would you best explain liquidity risk?
a. Having enough assets that are all easily accessible.
b. Not having enough assets in any form.
c. Having enough assets but they are not easily accessible.
d. Having too many assets.
c. Having enough assets but they are not easily accessible.
Which of these combinations of funds must be exhausted before the Central Fund can be accessed to pay claims?
a. Premiums and Members’ Funds at Lloyd’s.
b. Members’ Funds at Lloyd’s and available reinsurance.
c. Premiums and available reinsurance.
d. Members’ Funds at Lloyd’s and PRA levies.
a. Premiums and Members’ Funds at Lloyd’s.
What is the order of the Lloyds chain of security?
- Syndicate Level Assets
- Members Funds at Lloyds
- Central Assets
An insurer’s rating has recently been downgraded; however, a broker still recommends it to a client as they have placed risks with that insurer for many years. Unfortunately, the insurer fails and cannot pay future claims. In what circumstances, if any, might the broker suffer a professional negligence claim from their client?
a. None, since ratings are only one indicator of an insurer’s stability and the broker was familiar with the insurer when they placed the risk.
b. If the rest of the market was downgraded at the same time as the insurer’s individual downgrade.
c. If the rest of the market was NOT downgraded at the same time as the insurer’s individual downgrade.
d. If the policy was placed on a subscription basis.
c. If the rest of the market was NOT downgraded at the same time as the insurer’s individual downgrade.
An insurer’s rating has recently been downgraded; however, a broker still
recommends it to a client as they have placed risks with that insurer for many years. Unfortunately, the insurer fails and cannot pay future claims. In what circumstances, if any, might the broker suffer a professional negligence claim from their client?
a. None, since ratings are only one indicator of an insurer’s stability and the broker was familiar with the insurer when they placed the risk.
b. If the rest of the market was downgraded at the same time as the insurer’s individual downgrade.
c. If the rest of the market was NOT downgraded at the same time as the insurer’s individual downgrade.
d. If the policy was placed on a subscription basis.
c. If the rest of the market was NOT downgraded at the same time as the insurer’s individual downgrade.
