Chapter Tests

Question 1

If an insurer is experiencing severe delays settling its claims, this is most likely to be seen as a failure to:

Answer 1

Put its customers’ needs first.

Chapter reference 1E4

Question 2

An effective team leader should be able to create a cohesive team and also be:

Answer 2

Highly customer-focused and a good role model.

Chapter reference 2C5

Question 3

To whom does the UK Corporate Governance Code apply?

Answer 3

UK listed companies only.

Chapter reference 2A3

Question 4

Tactical information is used by a company to plan its resources, which include[s]:

Answer 4

Time, money and people.

Chapter reference 3D2

Question 5

A company is looking to list as a public limited company. How much allotted share capital must it have?

Answer 5

£50,000

Question 6

A UK listed insurer also has a USA stock exchange listing. In addition to UK corporate governance requirements, it will also need to comply with the requirements of the:

Answer 6

Sarbanes-Oxley Act 2002.

Chapter reference 4A2A

Question 7

A public limited company that has a year end of 31 December must file its accounts by the following:

Answer 7

30 June

Chapter reference 4C2D

Question 8

If a UK stock market listed business is NOT fully compliant with the UK Corporate Governance Code, it must:

Answer 8

State in its annual report where it is not compliant and provide reasons.

Chapter reference 4A1C

Question 9

The UK Risk Management Standard sets out the key elements of risk analysis. These include the following, EXCEPT:

Answer 9

Risk mitigation

Chapter reference 4D3D

Question 10

Who is ultimately responsible within a limited company for ensuring that the required company documents are filed with Companies House?

Answer 10

All of the directors.

Chapter reference 4B1

Question 11

An individual’s role is to set policy, monitor controls and check adherence to it. Where is this role most likely to fall within the ‘three lines of defence’ model of risk management?

Answer 11

The second line of defence.

Chapter reference 4D1

Question 12

If a senior manager within internal audit identifies breaches of internal controls, what action is he most likely to take?

Answer 12

Record the breaches and make recommendations to line management.

Chapter reference 5H2

Question 13

A risk assessment rating framework assesses risks based on:

Answer 13

Impact and probability

Chapter reference 5B1

Question 14

Under the Solvency II rules, what is a calculation kernel?

Answer 14

The model used in the quantification of capital requirements for all risk categories.

Chapter reference 5D

Question 15

Which body is currently the UK’s main independent regulator of corporate financial reporting and governance?

Answer 15

Financial Reporting Council.

Chapter reference 7C1

Question 16

If a public company fails to meet the Financial Reporting Council’s [FRC] Board requirements, which FRC Committee can seek an explanation from the company’s directors?

Answer 16

The Conduct Committee.

Chapter reference 7C1

Question 17

Under the Companies Act 2006, directors of UK incorporated businesses must not approve financial statements unless they are satisfied they are:

Answer 17

Accurate and fair

Chapter reference 7B4

Question 18

What is the standards-setting body called that is responsible for developing a single set of global accounting standards?

Answer 18

The IFRS Foundation.

Chapter reference 7A

Question 19

A UK listed firm prepares its accounts in accordance with the International Financial Reporting Standards. If the directors do NOT believe this provides an accurate picture of the company’s trading position, what must they do?

Answer 19

Depart from the standards and provide detailed disclosures why.

Chapter reference 7B4

Question 20

Why typically are a number of methods used when projecting claim costs?

Answer 20

To ensure a range of different scenarios are considered.

Chapter reference 8C2

Question 21

The ‘incurred but not reported’ test is important for insurers because it:

Answer 21

calculates the likely claims costs in a particular financial reporting period.

Chapter reference 8B

Question 22

Which method is most likely to be used when determining the claims exposure for pollution risks?

Answer 22

Exposure based method

Chapter reference 8C2

Question 23

For what class of insurance business is it most difficult to estimate claims reserves?

Answer 23

Employers liability

Chapter reference 8A

Question 24

An insurance company has net assets of £100m; liabilities of £80m and has an earned premium [net of reinsurance] of £60m. What is its solvency ratio?

Answer 24

Solvency ratio = Net assets (total assets - total liabilities) / earned premium net of reinsurance = £100m / £60m = 1.67

Chapter reference 9B1

Question 25

When looking at a claims ratio, the:

Answer 25

Lower the ratio the more secure the position is.

Chapter reference 9B4

Question 26

Under Solvency II, UK authorised insurers should be aware that they must meet:

Answer 26

Both the solvency capital requirement and the minimum capital requirement at all times.

Chapter reference 10B2A

Question 27

What part of the Solvency II requirements does an own risk and solvency assessment [ORSA] fall under?

Answer 27

Pillar II

Chapter reference 10B2B