Chapter2-External environment

Question 1

Framework

Answer 1

1 General factors to consider
2 Underwriting Cycle 
3 Compulsory general insurance
4 Regulation assisting customers to enter into contracts suitable to their financial needs
5 Accounting standards
6 Taxation of benefits
7 Tax on items other than benefits
8 Corporate governance
9 Internationalism
10 Capital adequacy and solvency
11 The effect of age on Lifestyle
12 Effects of an ageing population
13 Climate change
14 Emissions trading
15 Mutual and proprietary companies
16 Culture and social trends
17 Technological influences
18 Influence of state benefits

Question 2

Underwriting Cycle

Answer 2

The amount of profit that can be made in insurance classes tends to move in cycles.

The cycles are caused by market forces of supply and demand, actual claims experience and economic climate.

When business is profitable, more insurers enter the market.

Premiums decrease as insurers want to gain market share.

This leads to profits decreasing, losses, loss of business and weaker solvency positions.

The cycle goes into depression.

The depression can be made worse by disasters or by the economic climate.

At the bottom of the cycle, insurers either leave or decrease their participation in the market.

Eventually premiums increase to eliminate the losses happening at the bottom and because there is less competition.

Question 3

Corporate governance

Answer 3

Corporate governance is the way(framework) in which corporates (companies) are governed (managed) at a high level

A good corporate governance framework:

encourages managers to act in the best interests of parties, rather than in their own personal interests

gives managers rewards for completing the first aim

makes use of non-executive directors.

Question 4

Factors to consider relating to external environment

Answer 4

Corporate structure 
Regulation and legislation 
Environmental issues and climate change 
Accounting standards 
Tax 
Economic outlook (eg interest rates, inflation, growth and exchange rates) 

Governance 
Risk management requirements 
Adequacy of capital and solvency 
New business environment 
Demographic trends 

Lifestyle considerations 
International practice 
State benefits 
Technology 
Social and cultural trends