INSURERS (OWNERSHIP) Flashcards
If a company wishes to transact insurance, who has to authorise it?
PRA + FCA
What is the PRA?
Prudent Regulation Authority
For approval, what must the PRA be satisfied with?
The applicant complies with its conditions and retained EU legislation.
Insurance companies are required to maintain defined levels of what?
Solvency margins
What is a company’s solvency margin?
The difference between its assets + its liabilities.
What is the FCA
Financial Conduct Agency
What is the FCA’s strategic objective?
Ensure that the relevant markets function well.
What can insurers be defined by?
Ownership + function
What are the 5 types of insurer as defined by ownership?
- Proprietary companies
- Mutual companies
- Captive companies
- Protected cell companies
- Lloyd’s
What act are most proprietary insurance companies registered under?
Companies Act 1985
What are proprietary companies owned by?
Shareholders
Proprietary companies - after buying shares, what to shareholders contribute to?
The share capital of the firm
Proprietary companies - Company profits belong to the shareholder after what?
Expenses + reserves
Are proprietary companies limited liability companies?
No
What does it mean for a shareholder when proprietary companies are limited liability companies?
Their liability for the companies debts is limited to the nominal value of shares they own.
Proprietary companies - What is the nominal value of shares
The originally stated face value of the shares
Proprietary companies - Who are private limited companies’ shares not available to?
The general public
Who are mutual companies owned by?
Policyholders
Mutual companies - Policy holders share in profits by a way of lower what?
Lower premiums
Mutual companies - In THEORY, what are policyholders liable for?
Any losses made by the company
Mutual companies - In REALITY, why are mutual companies limited by guarantee?
A policyholders maximum liability is limited to their premium
What are mutual indemnity associations?
Self-managed pools of insurers
Who are mutual indemnity associations owned by?
Policyholders
What are mutual indemnity associations primarily active in?
Marine insurance
Mutual indemnity associations - What do Protection and indemnity associations insure certain aspects of?
Marine hull liability
What is a Captive insurance company established by?
Its parent company/group
What do Captive insurance companies provide insurance for
The parent company
Captive insurance is a ____ method of transferring risk
Tax-efficient
Captive insurers - What are the 2 Ways in which the tax efficiency arises?
- Premiums payable to the captive, may be tax deductible at source
- The captive will be established in a territory with a favourable tax rate that will apply to trading profits
Captive insurers - Where do many captive insurers operate from? Why?
Offshore locations - because of favourable tax regimes
Do captive insurers offer insurance to the general public?
No
What is an incentive for captive insurance?
The ability to get the full benefit of the groups risk control techniques by paying premiums based on its own experience
What is a protected cell company?
Special type of captive insurer that operates in 2 parts (a core and an unlimited number of cells)
What does a PCC do?
‘Ring fences’ the assets of the participating cells + allows them to operate as distinct insurance entities
Is a PCC single legal entity?
Yes
PCC - What is the role of the single board of directors?
Manage the affairs of the PCC as a whole
PCC - After entering into a cell management agreement with the PCC, who is the prospective cell owner bound by?
The PCC’s Memorandum and Articles of Association
PCC - Entry to the PCC is subject to approval by who?
The PCC board
PCC - What are 2 benefits to using a PCC?
- The minimum establishment + administration costs
- Their creation in territories with favourable tax rates that apply to trading profits
