Chapter 10 v.w Flashcards

1
Q

Who invites rating agency in?

A

The board, themselves

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2
Q

Who appoints the external auditor

A

The insurer

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3
Q

Who pays for the rating agency

A

Themselves

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4
Q

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

A

No

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5
Q

What is rating used for

A

A marketing tool

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6
Q

What does rating show you

A

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

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7
Q

What is AAA rating

A

Highest rating

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8
Q

Will A - outperform a BBB

A

Yes

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9
Q

Is a C or D rating bad?

A

Yes

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10
Q

Which rating do people start investing?

A

BB onwards

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11
Q

Why do insurers used rating agencies?

A

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

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12
Q

What is the rating process

A

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

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13
Q

Can you challenge the rating process

A

Yes but only once

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14
Q

What nine things do they use to come up with rating

A
  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
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15
Q

What are solvency margins

A

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

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16
Q

What is solvency I called

A

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

17
Q

Why is solvency II and solvency I different

A

Solvency II is a lot higher limit

18
Q

What are the three pillars of Solvency II

A

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

19
Q

What is the Solvency Capital requirement under pillar one

A

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

20
Q

What is Solvency Capital confidence level under pillar one

A

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

21
Q

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

A

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

22
Q

What is the USED test

A

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

23
Q

Is an actuary compulsory under pillar one

A

Yes. It’s compulsory

24
Q

What are pillar two

A

Own risks and solvency assessments (ORSA)

25
What do you do under pillar two
The ORSA test - flow chart every bit of risk you do. You do your ORSA. Show regulator you have control of your business.
26
What is pillar three under Solvency II
Public disclosure - having transparent relationship with your regulator
27
What do you need to do under Pillar three
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
28
Where do you do the solvency and financial condition report
PILLAR THREE
29
What is pillar one:
Solvency capital requirement. 1 in 200 years. USED test - means if you use your own model it needs to be signed off.
30
What is pillar two:
ORSA - flow chart everything you do.
31