Chapter 10 v.w

Question 1

Who invites rating agency in?

Answer 1

The board, themselves

Question 2

Who appoints the external auditor

Answer 2

The insurer

Question 3

Who pays for the rating agency

Answer 3

Themselves

Question 4

Do the PRA or FCA require you to have a rating?

Answer 4

No

Question 5

What is rating used for

Answer 5

A marketing tool

Question 6

What does rating show you

Answer 6

How financially secure you are. Assess ability to pay customer claims.

Question 7

What is AAA rating

Answer 7

Highest rating

Question 8

Will A - outperform a BBB

Answer 8

Yes

Question 9

Is a C or D rating bad?

Answer 9

Yes

Question 10

Which rating do people start investing?

Answer 10

BB onwards

Question 11

Why do insurers used rating agencies?

Answer 11

Better you are shows you are secure, can charge more as financially secure

Question 12

What is the rating process

Answer 12

2 people attend the insurer and go through everything. They create a report to put it to the ratings committee who will come up with your letter

Question 13

Can you challenge the rating process

Answer 13

Yes but only once

Question 14

What nine things do they use to come up with rating

Answer 14

1. Economic and industry risk - looks at the sector you are in
2. Competitive position - look at you compared to your competitors
3. Management corporate strategy - do they like the poeple that run the company
4. ERM - like the way you assess and control risk
5. Operating ratio - look at your ratios
6. Investments
7. Enough spare capital to meet solvency II requirement
8. Liquidity - have enough cash
9. Financial flexibility -Ability to get guaranteed money - bank loans

Question 15

What are solvency margins

Answer 15

What you have to put aside to be able to survive if bad things happen - think a cushion

Question 16

What is solvency I called

Answer 16

The minimum capital requirement. So low must not go below it.

Question 17

Why is solvency II and solvency I different

Answer 17

Solvency II is a lot higher limit

Question 18

What are the three pillars of Solvency II

Answer 18

Pillar one: Financial requirements
Pillar two: Government and supervision
Pillar three: Reporting and disclosure

Question 19

What is the Solvency Capital requirement under pillar one

Answer 19

Run a set of risks and can show your regulator to meet your 1 in 200 year scenario

Question 20

What is Solvency Capital confidence level under pillar one

Answer 20

99.5%
1 in 200 year floods. 1 in 200 year recessions

Question 21

What do UK insurers use to work out their requirement to have new solvency margins under pillar one

Answer 21

Internal model - work out their own formula. EU offers external.

Question 22

What is the USED test

Answer 22

Pillar one - the regulator who have a lot of acturies themselves sign of that its fit for purpose

Question 23

Is an actuary compulsory under pillar one

Answer 23

Yes. It’s compulsory

Question 24

What are pillar two

Answer 24

Own risks and solvency assessments (ORSA)

Question 25

What do you do under pillar two

Answer 25

The ORSA test - flow chart every bit of risk you do. You do your ORSA. Show regulator you have control of your business.

Question 26

What is pillar three under Solvency II

Answer 26

Public disclosure - having transparent relationship with your regulator

Question 27

What do you need to do under Pillar three

Answer 27

Have to publish solvency and financial condition report to the regulator - includes how you use your internal model, where you not been compliant with solvency requirements

Question 28

Where do you do the solvency and financial condition report

Answer 28

PILLAR THREE

Question 29

What is pillar one:

Answer 29

Solvency capital requirement. 1 in 200 years. USED test - means if you use your own model it needs to be signed off.

Question 30

What is pillar two:

Answer 30

ORSA - flow chart everything you do.