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Cert CII - LM2 > 7 - Underwriting > Flashcards

7 - Underwriting Flashcards

1
Q

How does an insurer better protect its investors against loss?

A

By spreading exposures over a number of risks

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2
Q

how does electronic placing improve the efficiency of the insurance market?

A

Removes unnecessary face-to-face where there is no benefit to the transaction, whilst maintaining it elsewhere

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3
Q

Why is it important for Lloyd’s to make their market more efficient and lean?

A

To maintain competitive premiums with other markets around the world

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4
Q

Under what areas are insurers rated?

A
  1. Ability to pay claims
  2. Management
  3. Comparison to similar insurers
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5
Q

why is the choice of slip leader important?

A
  1. Sets good T&Cs
  2. Credible so other insurers are happy to follow
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6
Q

Why is there sometimes more than one bureau lead?

A

There may be a Lloyd’s lead and also a company market lead.

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7
Q

When may a broker have a duty of care to an insurer?

A

If the insurer delegates authority for underwriting or settling claims

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8
Q

If a broker knows information about the client, must they disclose it?

A

Under the 2015 Insurance Act, knowledge held by a broker about a risk is deemed to be known by their client - therefore must be disclosed under a duty of care.

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9
Q

In property insurance, what is important to know about exposures?

A
  1. No. of properties in area
  2. Total Sum insured
  3. Are the same perils covered by all properties
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10
Q

What does PML (Probable maximum loss) help measure?

A

Exposure - the realistic loss that would occur without them all happening at once

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11
Q

What is the name given to Lloyd’s specific scenarios that test the impact of events on insurers?

A

Realistic Disaster Scenarios (RDSs)

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12
Q

What does an RDS involve?

A
  1. managing agent works out what risks will be exposed by scenario
  2. Work out reinsurance cover and cost of insurance
  3. Calculate the financial impact of the event
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13
Q

What is an RDS ultimately presented as?

A
  1. Gross financial exposure (without reinsurance)
  2. Net Result (with costs and claims of reinsurance)
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14
Q

What are the three elements an insurer must model to predict financial loss?

A
  1. Exposure modelling
  2. Loss modelling
  3. Catastrophe modelling
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15
Q

How does catastrophe modeling afect staffing at insurers?

A

Insurers have to be ready in the event of a catastrophe with an adequate claims team

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16
Q

How are insurers able to calculate accurate premiums through data?

A

The law of large numbers

17
Q

What is the premium base?

A

The sum insured or other measure of the exposure

18
Q

What is premium rate?

A

The hazards that are being faced with a particular risk or particular insured

19
Q

what does rate per mille mean?

A

The amount of insurance charged per £1000 of the sum insured

20
Q

How are premium bases calculated for liability and indemnity insurances?

A

Baased on payroll, turnover or fees earned

21
Q

How are premium bases calculated for liability and indemnity insurances?

A

Based on payroll, turnover or fees earned

22
Q

What operational factors influence an insurer’s premium calculation?

A
  1. Costs - Operation and Reinsurance
  2. Making a profit
  3. Building reserves
  4. Taxes
23
Q

what is meant when reserves are calculated ‘individually’?

A

Potential claims are viewed on a case-by-case basis, rather than being grouped or aggregated

24
Q

Why must claims adjusters pay close attention to the location of a risk?

A

Different jurisdictions may pay varying rates of compensation based on their legal system, eg. US more than UK for personal injury

25
Q

Why must claims adjusters pay close attention to the location of a risk?

A

Different jurisdictions may pay varying rates of compensation based on their legal system, eg. US more than UK for personal injury

26
Q

why is not a good idea to simply reserve the full amount of policy limits?

A

Under the solvency equation, greater unpaid claims means greater capital required

27
Q

What is IBNR (Incurred but not reported)?

A

Making provision for claims payments where the claims are not yet known about yet.

28
Q

What is the name given to physical reserves within the same country the risk is placed?

A

Situs/trust funds

29
Q

What does reinsurance to close (RITC) involve?

A

A syndicate reinsuring itself against last years syndicate so that they can close their book and declare a profit or loss

30
Q

Why might RITC not be possible?

A

Often claims are too large and complex, so premiums can’t be agreed and the year stays open

Cert CII - LM2 (10 decks)

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