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IF1 - THE INSURANCE MARKET > INSURERS (OWNERSHIP) > Flashcards

INSURERS (OWNERSHIP) Flashcards

1
Q

If a company wishes to transact insurance, who has to authorise it?

A

PRA + FCA

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2
Q

What is the PRA?

A

Prudent Regulation Authority

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3
Q

For approval, what must the PRA be satisfied with?

A

The applicant complies with its conditions and retained EU legislation.

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4
Q

Insurance companies are required to maintain defined levels of what?

A

Solvency margins

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5
Q

What is a company’s solvency margin?

A

The difference between its assets + its liabilities.

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6
Q

What is the FCA

A

Financial Conduct Agency

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7
Q

What is the FCA’s strategic objective?

A

Ensure that the relevant markets function well.

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8
Q

What can insurers be defined by?

A

Ownership + function

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9
Q

What are the 5 types of insurer as defined by ownership?

A
  • Proprietary companies
  • Mutual companies
  • Captive companies
  • Protected cell companies
  • Lloyd’s
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10
Q

What act are most proprietary insurance companies registered under?

A

Companies Act 1985

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11
Q

What are proprietary companies owned by?

A

Shareholders

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12
Q

Proprietary companies - after buying shares, what to shareholders contribute to?

A

The share capital of the firm

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13
Q

Proprietary companies - Company profits belong to the shareholder after what?

A

Expenses + reserves

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14
Q

Are proprietary companies limited liability companies?

A

No

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15
Q

What does it mean for a shareholder when proprietary companies are limited liability companies?

A

Their liability for the companies debts is limited to the nominal value of shares they own.

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16
Q

Proprietary companies - What is the nominal value of shares

A

The originally stated face value of the shares

17
Q

Proprietary companies - Who are private limited companies’ shares not available to?

A

The general public

18
Q

Who are mutual companies owned by?

A

Policyholders

19
Q

Mutual companies - Policy holders share in profits by a way of lower what?

A

Lower premiums

20
Q

Mutual companies - In THEORY, what are policyholders liable for?

A

Any losses made by the company

21
Q

Mutual companies - In REALITY, why are mutual companies limited by guarantee?

A

A policyholders maximum liability is limited to their premium

22
Q

What are mutual indemnity associations?

A

Self-managed pools of insurers

23
Q

Who are mutual indemnity associations owned by?

A

Policyholders

24
Q

What are mutual indemnity associations primarily active in?

A

Marine insurance

25
Q

Mutual indemnity associations - What do Protection and indemnity associations insure certain aspects of?

A

Marine hull liability

26
Q

What is a Captive insurance company established by?

A

Its parent company/group

27
Q

What do Captive insurance companies provide insurance for

A

The parent company

28
Q

Captive insurance is a ____ method of transferring risk

A

Tax-efficient

29
Q

Captive insurers - What are the 2 Ways in which the tax efficiency arises?

A
  • 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
30
Q

Captive insurers - Where do many captive insurers operate from? Why?

A

Offshore locations - because of favourable tax regimes

31
Q

Do captive insurers offer insurance to the general public?

A

No

32
Q

What is an incentive for captive insurance?

A

The ability to get the full benefit of the groups risk control techniques by paying premiums based on its own experience

33
Q

What is a protected cell company?

A

Special type of captive insurer that operates in 2 parts (a core and an unlimited number of cells)

34
Q

What does a PCC do?

A

‘Ring fences’ the assets of the participating cells + allows them to operate as distinct insurance entities

35
Q

Is a PCC single legal entity?

A

Yes

36
Q

PCC - What is the role of the single board of directors?

A

Manage the affairs of the PCC as a whole

37
Q

PCC - After entering into a cell management agreement with the PCC, who is the prospective cell owner bound by?

A

The PCC’s Memorandum and Articles of Association

38
Q

PCC - Entry to the PCC is subject to approval by who?

A

The PCC board

39
Q

PCC - What are 2 benefits to using a PCC?

A
  • The minimum establishment + administration costs
  • Their creation in territories with favourable tax rates that apply to trading profits

IF1 - THE INSURANCE MARKET (11 decks)

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