Chapter 2

Question 1

Working capital

Answer 1

For M&A, and purchase equipment

Question 2

Solvency I

Answer 2

Minimum Capital Requirement

Found in FCA handbook

Capital resource requirement > MCR

Question 3

Solvency II - introduced Jan 2016

Answer 3

15-20% of premiums as buffer, insurers usually hold 40%

Question 4

UW & capital requirements

Answer 4

The riskier the business the greater need for capital = rate on premium is higher

Question 5

Volatility

Answer 5

liability claims -> small number of claims can be significant

Question 6

Too much capital when

Answer 6

No clear plan for growth: opps may be limited, further growth = too risky business

Question 7

Too little capital when

Answer 7

Unable to take adv of oppos, may not be able to write the volume of business

Have to purchase more RI

Attract PRACon

Question 8

Contract certainty

Answer 8

FCA will be concerned

Insurance industry industry mad Contract Certainty Code of Practice -> Sept 2018

Question 9

Contract Certainty Code of Practice

Answer 9

Contract certainty achieved by the time they enter into contract

Principal A: Broker must ensure all terms are clear and unambiguous by the time offer is accepted

Principal B: Documentation must be given to PH promptly -> 7 working days for consumer and 30 calendar days for commercial (from either incpetion, date entered into contract, last insurer to enter contract)

Principal G:
Insurer and broker must resolve issues with contract certainty ASAP without undue delay

Question 10

Consumer RIghts Act 2015

Answer 10

Exclusions cannot be challenged on grounds of fairness -> Unfair = not binding

If contract term not transparent or prominent it can be assessed for unfairness

Question 11

Rights of 3rd parties Act 1999

Answer 11

Privity of contract = enforce contract of they’re a party to it

Question 12

Compulsory insurance

Answer 12

• 3rd party motor -> RTA 1988
• Public liability for dangerous / wild animals
• Employers liability
• Solicitors and intermediaries

Question 13

Motor Insurance Bureau (MIB)

Answer 13

Compensate victims of uninsured motorists

Question 14

EU gender directive

Answer 14

In 2011 EU decided gender cannot be used for premium calcs

Question 15

Warranties

Answer 15

Pre IA 2015 -> warranty breach = discharge of contract

IA removed this, insurers liability suspended until it’s fixed

Question 16

4 types of discrimination

Answer 16

Direct: because of characteristics
Associative: Associate with another person
Perceptive: Thinking someone has characteristics
Indirect: condition, rule that applies to everyone but specific person

Question 17

Hard Market

Answer 17

Build reserves from profits = prepping for losses at bottom of cycle

Actuarial modelling calcs future liabs, taking past exp, inflation and trends in liabs settlement

Selective UW less effect on profitability, solvency margins

Question 18

Soft market

Answer 18

Face rising expense ratios

RI costs often based off written premium, but won’t fall proportionately

Increased commissions requested by brokers

Question 19

First fraud database

Answer 19

Claims underwriting exchange (CUE)

Question 20

Pool Re

Answer 20

Commercial property PH can request terrorism cover from insurer by a way of RI

Question 21

Climate Wise principals

Answer 21

1. lead in risk analysis
2. inform public policy making
3. support climate awareness
4. incorprate climate change into investment strategies
5. reduce environmental impact of businesses
6. report and be accountable

Question 22

Climate Change act 2008

Answer 22

1. Improve carbon management
2. Show strong UK leadership

Question 23

Flood Re

Answer 23

1st ever RI flood pool only covers homes, excludes properties buitl after 2009 in pace until 2039

Question 24

Employers liability tracing office

Answer 24

Employer name
Employer ref number
Address
PH name
Policy number
Inception
end date

Question 25

PRA & Cyber

Answer 25

2021 clarity on cyber coverages