E92 Questions

Question 1

Who arranges for a credit rating agency to produce a financial security rating on an insurance company?

A. The external auditors.
B. The Government.
C. The insurance company.
D. The regulator.

Answer 1

C

Question 2

When reserving for claims under long-tail insurance classes, the amounts are most commonly discounted to allow for

A. Corporation Tax.
B. cost savings.
C. investment income.
D. market risk.

Answer 2

C

Question 3

When depreciation is shown in a company’s financial accounts, accounting concepts require that this represents the

A. amount of the company’s turnover minus the cost of sales.
B. cost of an asset apportioned over the financial period during which the company will benefit
from the use of that asset.
C. difference between the amount paid for acquiring a company and the value of the net assets of
that company when acquired.
D. money used to finance daily trading activities.

Answer 3

B

Question 4

Which method of projecting the total cost of claims solely extrapolates the paid claims and does NOT use any other information?

A. Bornhuetter-Ferguson.
B. Loss ratio method.
C. Projection of incurred claims.
D. Projection Of Paid Claims.

Answer 4

D

Question 5

The independent companies appointed by Lloyd’s underwriting members to underwrite business are known as

A. brokers.
B. franchisors.
C. managing agents.
D. syndicates.

Answer 5

C

Question 6

An insurer uses balanced scorecards as a strategic management tool. The main purpose of this is to

A. calculate insurance premiums.
B. calculate its financial strength.
C. measure its performance.
D. reduce its costs.

Answer 6

C

Question 7

What is a public company legally obliged to do, which a private company is NOT?

A. Appoint a company secretary.
B. Comply with the Financial Conduct Authority’s Conduct of Business Rules.
C. Purchase errors and omissions insurance.
D. Register with Companies House.

Answer 7

A

Question 8

An insurer intends to assess its position via a use test, to comply with proposed changes in regulations. This forms part of the rules relating to

A. capital adequacy.
B. claims reserves.
C. internal audit.
D. risk tolerance.

Answer 8

A

Question 9

In what principal way has the UK’s legal system influenced the growth of the international
insurance market?

A. All insurance policies issued by UK insurers are subject to English law.
B. English case law is recognised and its practice is followed in every country.
C. International insurance disputes are always referred to English courts.
D. Many international insurance case precedents have been developed under English law

Answer 9

D

Question 10

Which function within an insurance company is primarily responsible for analysing potential mergers and acquisitions?

A. Finance.
B. Internal audit.
C. Investment.
D. Strategy.

Answer 10

D

Question 11

Insurer X is a multinational company and insurer Y is a global company. This means that only

A. insurer X Regards The World As One Potential Market.
B. insurer Y’s aim is to be regarded as a centralised business.
C. insurer Y is permitted to have a base in the UK.
D. insurer operates in a number of different countries.

Answer 11

B

Question 12

An insurer’s Articles of Association must include

A. details of the insurer’s technology management strategy.
B. methods for building up relationships with customers.
C. the regulations for the running of the insurer’s internal affairs.
D. specific techniques to identify risk within the insurer.

Answer 12

C

Question 13

An insurance company’s tactical plan may refer to

A. development new insurance products over a 2-year period.
B. long-term resource allocation over a 10-year period.
C. routine day-to-day methods of working.
D. weekly monitoring of budgets.

Answer 13

A

Question 14

The chief executive officer of a large insurance company wishes to review its solvency margin. From which financial document will he obtain the necessary information?

A. Balance Sheet.
B. Cash flow statement.
C. Management accounts.
D. Profit And Loss Account.

Answer 14

A

Question 15

What are customer stakeholders of an insurer most likely to expect?

A. Competitively-priced products.
B. Fair competition to be evidenced.
C. Increased share value.
D. Sustained And Increasing Investment Growth.

Answer 15

A

Question 16

An insurer is establishing its claims reserving policy on a discounted claims basis. This confirms that

A. claims values appear to be inflated.
B. incurred but not reported claims are being written-off.
C. investment income is being taken into account.
D. voluntary excesses are being applied by policyholders.

Answer 16

C

Question 17

Which UK companies are required to report whether they are compliant with the UK Corporate Governance Code?

A. All companies.
B. Only those which are limited companies.
C. Only those listed on the London Stock Exchange.
D. Only those with a turnover in excess of £1,000,000.

Answer 17

C

Question 18

Which type of activity in the Standard and Poor’s insurance ratings framework is most likely to be classified as a modifier?

A. Committee voting.
B. Enterprise risk management.
C. Gearing ratio analysis.
D. Industry and country risk.

Answer 18

B

Question 19

In the context of management information systems, a control cycle is best described as the

A. comparison against a plan and production of reports by exception.
B. compilation and redistribution of an organisation’s collective skills.
C. consultation between a manager and his team members.
D. provision of conditions which will help a manager achieve his key objectives.

Answer 19

A

Question 20

Management accounting differs from financial accounting in that management accounts

A. are distributed to all stakeholders.
B. are prepared specifically for calculation of taxation liability.
C. are used to determine shareholders’ dividends.
D. need not be audited by external auditors

Answer 20

D

Question 21

Two factors that have allowed the City of London to develop into an international insurance centre are?

A. highly qualified personnel and office space both being available at competitive prices.
B. the high number of domestic insurers and a lack of foreign insurers.
C. The growth in numbers of both direct insurers and aggregators.
D. white-labelling products being available and the growth in the number of tour operators.

Answer 21

A

Question 22

When an insurance company seeks to play a role in society via sponsorship and community
projects, this is known as

A. an ethical standard.
B. a principles based approach.
C. a shareholder focus.
D. a stakeholder perspective.

Answer 22

D

Question 23

An international composite insurer is drafting its annual report. In accordance with the Companies Act 2006, what is the position regarding the inclusion of a chairman’s statement in this report?

A. It is mandatory in all circumstances.
B. It is only required if a directors’ report is also included.
C. It is only required if a directors’ report is not included.
D. It is optional in all circumstances.

Answer 23

D

Question 24

Which document best gives an indication of a company’s liquidity?

A. An auditor’s report.
B. A cash flow statement.
C. A directors’ report.
D. An income statement.

Answer 24

B

Question 25

How is an insurer’s gearing ratio calculated?

A. Long-term borrowings divided by shareholders equity.
B. Short-term borrowings divided by shareholders’ equity.
C. Shareholders’ equity divided by long-term borrowings.
D. Shareholders Equity Divided By Short-term borrowings.

Answer 25

A

Question 26

To whom is financial accounting most useful?

A. Financial analysts only.
B. Internal management only.
C. The regulator only.
D. Stakeholders.

Answer 26

D

Question 27

What is shown respectively on a company’s income statement and balance sheet?

A. The income statement shows the financial position at a particular pointintimean the balance sheet shows the results of transactions during the accounting period.
B. The income statement shows the results of transactions during the accounting period and the balance sheet shows the financial position at a particular point in time.
C. The income statement shows the financial position at a particular point in time and the balance sheet shows the sources and uses of cash.
D. The income statement shows the sources and uses of cash and the balance sheet show the financial position at a particular point in time.

Answer 27

B

Question 28

When looking at the solvency requirements of insurance firms, the Prudential Regulation Authority states that the probability factor that should NOT be exceeded is

A. 1 chance in 200 over a 12-month timescale.
B. 1 chance in 200 over an 18-month timescale.
C. 1 chance in 500 over a 12-month timescale.
D. 1 chance in 500 over an 18-month timescale.

Answer 28

A

Question 29

One of the main differences between financial accounts and management accounts is that only

A. financial accounts are legally required.
B. financial accounts are produced on a calendar year basis.
C. management accounts are a useful indication of liquidity.
D. management accounts are required to be audited.

Answer 29

A

Question 30

The internal rate of return is most commonly used to measure the

A. constraints that departments are working under.
B. viability of undertaking future projects.
C. reduction in yield resulting from external costs.
D. reduction in yield resulting from fixed costs.

Answer 30

B

Question 31

In addition to inflation, what external influence should an insurer primarily take into account when calculating a personal injury claim reserve?

A. Actuarial premium rate increases.
B. Frequency of catastrophe claims.
C. Market share of liability business.
D. Recent claim litigation awards.

Answer 31

D

Question 32

A life assurance company aims to grow non-organically through horizontal integration. This can most commonly be achieved by

A. acquiring a small reinsurance company.
B. acquiring a specialist general insurance company.
C. merging with a large broker network company.
D. merging with another life assurance company.

Answer 32

D

Question 33

The chief actuary of an insurance company is usually responsible for

A. management of debt and cash flow.
B. overseeing the risk management process.
C. preparing the profile of gross premium by currency.
D. technical pricing of new and existing products.

Answer 33

D

Question 34

Which UK companies must have Articles of Association?

A. Only those listed on the London Stock Exchange.
B. Only those which are private companies.
C. Only those with a turnover in excess of £1,000,000.
D. All those which are registered with Companies House.

Answer 34

D

Question 35

An insurance company uses the double-entry accounting principle for recording insurance transactions to reflect that it has

A. earned an amount of income which is balanced by an increase in cash.
B. made long-term investments which are balanced by an increase in cash.
C. made provision for outstanding losses which are balanced by a decrease in cash.
D. sold assets which are balanced by decrease in cash.

Answer 35

A

Question 36

An item has been inserted in a company’s balance sheet in respect of machinery. Under which heading will this normally appear?

A. Current assets.
B. Current liabilities.
C. Non-current assets.
D. Non-current liabilities.

Answer 36

C

Question 37

The most common reason why a mutual insurance company would demutualise is to

A. raise capital.
B. reduce its regulatory burden.
C. transact life assurance.
D. undertake reinsurance business.

Answer 37

A

Question 38

A company purchased a machine with a useful life of eight years for £24,000. Its residual value at the end of this period is estimated to be £2,000. When using straight line depreciation, how much depreciation is shown in the accounts solely for year two of this period?

A. £2,750
B. £3,000
C. £5,500
D. £6,000

Answer 38

A

Question 39

Which financial ratio gives an indication of an insurer’s underwriting year performance?

A. Claims ratio.
B. Combined ratio.
C. Credit turnover ratio.
D. Current ratio

Answer 39

B

Question 40

Which type of organisation deals with underwriting on behalf of an insurer and undertakes activities such as marketing and administration?

A. Anaggregator.
B. A captive insurer.
C. A managing general agent.
D. Reinsurance Company

Answer 40

C

Question 41

The financial strength of an insurance company as measured by a ratings agency is always

A. based only on publicly-available information.
B. a measure of its ability to pay all debts.
C. a measure of its ability to pay claims.
D. shown in its cash flow statement.

Answer 41

C

Question 42

The senior managers of an insurance company are reviewing performance against a monthly requirement to have no IT downtime of greater than 30 minutes a quarter. They are reviewing a

A. key effort-oriented performance indicator.
B. key results-oriented performance indicator.
C. key risk indicator.
D. key strategy analysis.

Answer 42

C

Question 43

A company’s measure of liquidity is indicated by a current ratio of 1.36 and a quick ratio of 1.28. The difference between the two ratios usually arises as a result of the amount of

A. debtors.
B. depreciation.
C. goodwill.
D. stock.

Answer 43

D

Question 44

A balance sheet records a company’s

A. gross cash flow.
B. gross financial position.
C. net cash flow.
D. net financial position.

Answer 44

D

Question 45

A shareholders’ liability under a proprietary company is

A. 50%of the nominal value of their shareholding.
B. the nominal value of their shareholding.
C. 50% of the total liabilities of the company.
D. unlimited.

Answer 45

B

Question 46

What is the primary function of financial accounting?

A. To allow Internal auditors to report on the adequacy of control systems.
B. To assist managers in formulating strategic plans.
C. To provide information on individual departments within an organisation.
D. To Report The Financial Position To All Stakeholders.

Answer 46

D

Question 47

Which distribution channel for insurance most commonly offers white-labelled products?
A. Aggregators.
B. Intermediaries. 
C. Retailers.
D. Travelagents.

Answer 47

C

Question 48

An insurer holds claims details on an ex-policyholder. When would the requirements of the Data Protection Act 1998 stop applying to this information?

A. Three years after the policy is terminated.
B. Upon conviction of insurance fraud.
C. Upon the death of the policyholder.
D. Upon rejection of a claim.

Answer 48

C

Question 49

When looking at the financial strength of an insurance company, a rating agency’s methodology takes into account the company’s capital adequacy which represents its

A. ability to efficiently manage cashflows and borrow money if required.
B. combination of the loss ratio, expense ratio and combined ratio.
C. potential requirement for additional capital or liquidity in the future.
D. quality and level of capital required to run business.

Answer 49

D

Question 50

How is an insurer’s solvency coverage ratio calculated?

A. Cashplus Investments Divided By Total Liabilities.
B. Regulatory capital available divided by surplus regulatory capital.
C. Surplus regulatory capital divided by regulatory capital available.
D. Total Liabilities Divided By Cashplus Investments.

Answer 50

C