Company Structure & Management Flashcards
Proprietary companies
These have authorised and issued share capital to which shareholders subscribe. Profits belong to sharcholdes after provisions for expenses and reserves. Shareholder liability is limited to their share amount
Mutual companies
Insurance companies that have no share Capital stock & are owned by the policy holders
Takaful insurance
Roots in Islamic Financial service industry. Designed to meet needs of religious group. These policies do not include uncertainty gambling or interest & no profit is made. Takaful Insurance products need to be approved by Islamic scholars to ensure complaince
Facultative reinsurance
Reinsurance purchased on a specific policy
Composite insurance company
Transact both life & general insurance
Proprietary insurer
Authorised and issued share capital to which the original shareholders are subscribed. Shareholders’ liability is limited to the value of their shares, the company is liable for its debts and if solvency margin cannot be met the company risks of insolvency.
Demutalisation
Process of turning a mutual to proprietary company. This must be done to raise share capital
Syndicates
Members of the Loyd’s market place that underwrite for their own profit and loss
Managing agents
Appointed by underwriting members to carry out business on their behalf
Incentives of captives
• Obtain full benefits of groups risk control techniques by paying premiums based on loss experience
• avoidance of insurers overheads
• obtain a lower overall risk premium level by purchasing reinsurance at cheaper lower costs
• to achieve risk financing objectives
Reinsurance treaty
The reinsurer agrees to part of all insurances that the direct insurer underwrites
Multinational Company
A company that operates in a number of countries but has one home base. The aim is to have the ability to respond to local demands as the business is a semi-independent operation all working under the global brand
Global company
Where the company sees the whole world as one potential market. Very centralised business but one common brand e.g. Lloyd’s
Requirements for an international insurance market
• Political & economic stability
• Good geographical location
• Quality transport system
• Highly qualified personnel
• English as a business language
• Stable legal & regulatory environment
• Good time zone
• Foreign presence
• Developed financial centre
Customer Relationship Management (CRM)
Using info about customers to create sales and marketing strategies that develop and sustain desirable customer relationships
Business ethics
Standards & moral conduct that a business sets itself in its dealings both within and outside the organisation as a whole
Shareholder focus
Society is capable of looking after itself and the key responsibility of the business is to its shareholder
Stakeholder perspective
It is in the business and shareholders long-term interest to play a role in society beyond what is required by law
CII code of ethics
-Comply with the code and all relevant laws and regulations
-Act with the highest ethical standards and integrity
-Act in the best interest of each client
-Provide a high standard of service
-Treat people fairly regardless of; age, disability, gender, pregnancy, marriage, race, religion, sex and sexual orientation
Organic growth
Where a company develops and expands by increasing sales revenue and output through its own business activities rather than through mergers & acquisitions
Benefits of organic growth
• Increasing consumer incomes
• Ready availability of finance
• Low interest rates
• Buoyant markets
• Opportunities to develop products
• Export opportunities
• Economies of scale
• Increased revenue, profits and shareholder value
Organic growth drivers
• A sound means to measure progress and success
• More profitable rate with better investment return
• Enables executive management to demonstrate long term commitment to a business by building it with internal resource
• Management can fully focus on growing the business and achievement of goods and not be distracted by a merger or acquisition
Horizontal merger
The combination of two or more firms competing in the same space with the same goods or services.
• Improve a mediocre performance to a better market position
• Achieving economies of scale
• Improving competitiveness
• Possible opportunities for diversification
Vertical merger
When a company is trying to control a stage either closer to the source of the manufacturer or close to the source of the customers
• Reduce costs through economies of scale
• Gain more control of the market
• Add greater value to the customer
Merger
Two firms agree to join forces on a strategic basis
Acquisition
A company gains control by purchasing a majority shareholding
Reasons for M&A
• Growth
• Efficiency and improved performance
• Overcoming the costs of IT by sharing resources
• Provides investment capital if insurer has spare capital
• Spread risk
Disadvantages of M&A
• Reduced customer choice through reduction in number of organisations offering products to customers
• Impact on staff and potential redundancies
• Clash of corporate culture
• Reduced customer service while changes are implemented
• Expected savings not realised
Outsourcing
The use of skilled resources outside the company to handle work previously done in house
Advantages of outsourcing
• Business is guaranteed a certain level of service as set out in the contract
• The business can budget for pre agreed fixed costs
• Outsourcing companies are usually specialists and will bring new skills and working methods to the company
Disadvantages of outsourcing
• Business could loose customers and suffer reputational damage due to poor service standards
• The business could became dependent then have issues long term
• Care needs to be taken with customers confidential information and any mistakes are the responsibility of the business
• Control and direction is lost
Executive Director
Works full time for the business and is given Management responsibilities for running parts of the business
Non-executive director
Part-time work with the business chosen for their expertise
Responsibilities of the board
• Regulation of executive directors and other members of Senior management to ensure they uphold shareholder interests and the law.
• approves reports, accounts, annual budgets, strategy etc
• selecting apprising & rewarding the CEO and ensuring succession plans are in place
• overseeing risk management & ensuring necessary mitigations are implemented
• ensuring integrity & principles are upheld on critical matters like financial reporting accuracy, regulatory compliance and ethical standards
Corporate governance
Stringent regulation that determine the way by which companies (especially public companies) are controlled internally through the board and executive management
UK corporate governance code
Sets out UK standard practice in relation to issues such as
• board composition and development
• remuneration
• accountability and audit
• relations with shareholders
Roles of CEO
• Formulate company objectives and policy
• organise resource to translate board policy into operational policy
• lead the organisations structure and management style
• responsible for business functions and day to day activities
Roles of the financial director
• Responsible for economic model which helps set capital requirements
• scenario & stress testing to determine extreme risk
• propose to board forms of capital to hold in addition to share capital
• prepare board papers to assist in calculating dividends
• recommendations on appropriate capital levels of claims provisions to hold
• prepare accounts for board approval
• support investment analysts on reports on company performance and holders of company debt
• preparation of content for PRA and PRA main contact
• prepare management information on financial performance
• manage debt cash flow liquidity and treasury matters
• manage investment portfolio
• manage financial aspects of planning such as budget and forecast
• prepare for rating agency reviews and audits
• management of reinsurance accounting process
Company Secretary
Ensures all administrative and legal requirements are fulfilled by the company. All public companies must have one as a result of the Companies Act 2006
Chief actuary responsibilities
• technical pricing of new & existing products
• calculation of claims reserves
• calculation of risk-based capital requirements
• assessment of investment risk for funds supporting technical reserves
Other Senior positions
Chief risk officer
Head of internal audit
Underwriting director
Claims director
Marketing director
Head of HR
Head of IT
Strategy director
Investment director
Management actions
Planning
Organising
Leading
Controlling
Business components
Physical resources
Financial resources
Human resources
Individual managers roles
• hiring & staffing
• training, coaching and developing employees
• dealing with performance issues and dismissal
• support problem resolution and decision making
• conducting timely performance evaluations
• translating corporate goals into functional and individual goals
• monitoring performance and initiating action to strengthen results
• monitoring and controlling expenses and budgets
• monitoring performance and taking action to strengthen results
• tracking and reporting scorecard results to senior management
• planning and goal setting for future
Characteristics of effective internal communication
Accurate
Clear
Relevant
Reliable
Credible
Timely
Barrier to effective communication
Organisation size
Natural reserve/fear/lack of confidence
Knowledge is power
Language
Time
Training
The grapevine
Failure to see the need
Inability to listen
Benefits of effective communication
•Bring change in culture & structure of a business faster
•Reduce employee turnover
•Facilitate and improve decision making by including employees
•Encourage cooperation and innovation
•Ensure all relevant staff are helping to meet corporate objectives
Action centred leadership (ACL)
Widely used model for effective leadership. Three key areas of team leaders’ effectiveness;
•The task
•The team
•The individual
Open door Management
Managers are approachable at all times
Autocratic Management
Control & power rests with a single individual, usually the chief executive
Paternalistic Management
The company looks after its employees In a fatherly way, employees respect the company managers in the way a child respects their parents. This style is sometimes too interfering
Militaristic/hierarchical Management
Management is structured in a formal way, with clear job demarcations
Democratic/consultative Management
Decisions are taken with prior reference to as many employees as possible
Chaotic/laissez-faire Management
A more modern style of management. The Manager is a mentor and the employees are allowed to let their own ideas and creativity flourish in specific areas
Setting a strategic business plan
Needs to cover key areas that allow for company objectives to be to be achieved, including:
• setting objectives
• identify what needs to bedone to achieve objectives
• creating appropriate organisation structure
• allocating responsibilities to senior managers
• agreeing consistent management styles
• agreeing and setting budgets
• agreeing staff incentives
• setting sales targets
• planning most efficient use of resources
• setting timetables and deadlines
• identifying contingency plans
Implementing business plans
Pleas are created for each division Project or operational area & should include:
• SMART objectives (specific, measurable, achievable, relevant and time defined)
• strategy for achieving objectives
• specific activities that will be done
• allocation of responsibility for each activity
• specific estimates of resource requirements for the implementation period
• expected cost
• expected result
The budgeting process
• Guidelines from CEO
• consultation & preparation
• review by budget committee
• communication
• monitoring
Top-down budgeting
Owners/directors decide on the individual plans for each department and function and these plans are given to the individual managers for implementation
Bottom-up budgeting
Individual manages construct their own budgets within set guidelines. These are then passed up to managers & directors who incorporate individual budgets into the organisations master budget
Fixed budget
Does not change once it has been set, regardless of company’s performance. Projected figures gre compared to actual figures at the end of the year
Flexible budget
Changes in accordance with actual company performance
Zero-based budgeting
Managers justify expenditure from zero. Any amount they subsequently decide must be justified through a formal process. This process is completed by Senior manages rather than department budget-holders. Usually employed in research or legal teams
Rolling budgets
Budgets that constantly look forward. As you come to the end of a month a new month is added on to the rolling period e.g. 12 months. Managers are always looking ahead and alterations to future budgets are made regularly
Budget variance
Difference between actual & budgeted performance
Types of variance
Unfavourable: budgets not met (preventative action needs to be implemented)
Favourable: budgets are exceeded
Causes of variance
• Inadequate pricing
• Higher expenses than planned
• Random events
• Operating efficiency
Five C’s of decision making
Consider
Consult
Crunch
Communicate
Check
Strategic information
Used by Senior Management to plan the objectives of their organisation and to assess whether objectives are being met
Tactical information
Used by middle managers to ensure that resources of the business are employed to achieve the strategic objectives of the organisation
Operational information
Used by front-line managers like supervisors to ensure specific tasks are planned and carried out properly
Management information systems (MIS)
Database of Financial information used to produce regular reports on operations for every level of management. Gives managers feedback on their own performance and enables senior management to monitor the company as whole
Features of Management Information System
•Information flows horizontally and vertically
•Centre core of data is likely tactical info for management control, but subsystems have operational and strategical data too
•The control cycle (comparison of actual results v plan) requires that the plan is carefully prepared
•Precise and well drawn up specification of areas of management responsibilities is essential
•Information produced must be able to measure actual v plan results in a way that control decisions can be taken at all levels
Knowledge management
Compilation and redistribution of an organisations collective skills and experience for the benefit of the organisation as a whole
Codification strategy
Knowledge is carefully codified and stored in a database where it can be accessed and used easily by appropriate employees
Personalisation strategy
Knowledge is closely tied to the person who developed it and is shared person to person and through training courses. Computers are used purely for communicating not storing knowledge
Main role of audit committees
•Monitor integrity of Financial statements
•Review internal Financial controls
•Monitor & review effectiveness of internal audit function
•Make recommendations to board e.g. appointment of external auditor
•Review external auditors independence, objectivity and effectiveness
•Develop and implement policy on external audit supplying non audit services
•Report to board matters where action or improvement is needed and recommended next steps
Listing rules
Rules for listed companies administrated by the FCA. Dictates matters such as contents of prospectus for a company seeking listing and on going obligation such as disclosure of price sensitive information
Companies House
Three statutory functions:
•Incorporate and dissolve limited companies
•Examine and store information delivered under the companies act and related laws
•Make info public
Companies listed on the London stock exchange must follow which reporting standard?
International Financial Report Standards (IFRS)
3 things most financial accounts will include
Income statement
Balance sheet
Directors repot
First line of defence
Once a risk strategy is set it is primarily the responsibility of front line manages to ensure risks are identified and controlled in keeping with the strategy and control environment
Second line of defence
The risk management department will be actively involved in discussing the best control to be put in place, accountability for the delivery of risk control remains with the operational management
Third line of defence
The internal audit team has the responsibility of reviewing the overall risk management operation. Auditing both front line managers and the effectiveness of the risk management department
4 key risk categories for insurance companies
Strategic
Underwriting & reserving
Investment / market
Credit
Statutory external audit
Under the companies act 2006 external audit must be conducted by an approved entity and a report to shareholders published. Companies with 2 of the following require external audit:
•Turnover > £10.2m
•Net assets > £1.2m
•More than 50 employees
Benefit of internal audit
•Maintain a sound system of internal controls
•Reviewing board reports to ensure they show a balanced and understandable viewpoint
•Ensure directors are up to date with new accounting & auditing issues e.g. International accounting standards
•Communicating with external auditors and ensuring a unified approach to work and that the board receive the correct information
Role of compliance
Ensure that processes and activities are carried out in compliance with established operational procedures and meet requirements of regulators
GDPR (General Data Protection Regulation)
New EU law on data protection and privacy for individuals
Data controller
Someone who determines why and how personal data is processed
Data processor
Someone who processes data on behalf of a data controller
Data Protection principles
- Personal data shall be processed fairly & lawfully
- Personal date shall be obtained only for a specified and lawful purpose and should not be processed in any manor incompatible with that purpose
- Personal data should be adequate relevant and not excessive
- Personal data shall be accurate and where necessary up to date
- Personal data shall only be kept for as long as is necessary
- Personal data shall be processed in accordance with the rights of data subjects
Rights of data subjects under GDPR
The right to be informed
The right of access
The right of rectification
The right of erasure
The right to restrict processing
The right to data portability
The right to object
Rights relating to automated decision making and profiling
Strategy team
Undertake projects for the Senior executives on new areas of business or perhaps look into expansion and development of existing business lines on operations
SWOT analysis
Strengths
Weaknesses
Opportunities
Threats
Strategy team activities
Mergers & acquisitions
Classes of business
Geographical spread
Partnerships
Outsourcing
Advertising & marketing
Broker or direct
Time horizons
Business planning
Coverholder
The party whom authority has been delegated to
Binding authority
Sets out the scope and extent of the authority delegated to the coverholder
Role of claims team
To ensure that when claims are made the policyholder receives fair and equitable settlement, in accordance with the contractual obligations of the policy
Marketing team roles
•Market research
•Competitor research
•Customer profiling, target markets and segmentation
•Develop strategic and operational marketing plan
•Advertising
•Media relations
•Public relationships and sponsorship
•Product development
•Relationship management including sales management and customer service
Pre-transactional customer service
Customer service mission statement, staff training, complaints handling process and preparation of warranties
Transactional customer service
Managing customer service demand patterns, timing and monitoring levels of customer service delivery
Post-transactional customer service
Claims handling service, handling complaints and cross-selling
Risk Management Standard
Identifying strategic objectives
Risk identification
Risk analysis
Risk reporting
Monitoring & iteration
Risk register
Centralised data source on all known risks, kept up to date by the risk management department. Significant finds are reported.
Risks are assessed as inherent or residual and rated from 1-15. They are assigned a Red (9-15) Amber (5-8) or Green (1-4) colour based on impact and probability
Compliance roles
•Communicate all regulatory requirements to employees and update on any changes
•Regulator point of contact
•Ensure all procedures are followed on every sale
•Carry out anti money laundering and fraud procedures
•Ensure credit checks are carried out
•Deal with complaints fairly
•Develop new procedure and audit existing procedure
•Ensure all staff in controlled functions are Approved Persons
•Regular reporting on compliance performance and any breaches
•Create and maintain compliance manual
Typical recruitment process
Sign off
Recruitment
Interview
Job offer
Induction
Facilities Management
Responsible for obtaining and maintaining adequate workspace and equipment, office procurement, may be involved in business recovery planning and arrangements
