INSURERS (OWNERSHIP)

Question 1

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

Answer 1

PRA + FCA

Question 2

What is the PRA?

Answer 2

Prudent Regulation Authority

Question 3

For approval, what must the PRA be satisfied with?

Answer 3

The applicant complies with its conditions and retained EU legislation.

Question 4

Insurance companies are required to maintain defined levels of what?

Answer 4

Solvency margins

Question 5

What is a company’s solvency margin?

Answer 5

The difference between its assets + its liabilities.

Question 6

What is the FCA

Answer 6

Financial Conduct Agency

Question 7

What is the FCA’s strategic objective?

Answer 7

Ensure that the relevant markets function well.

Question 8

What can insurers be defined by?

Answer 8

Ownership + function

Question 9

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

Answer 9

• Proprietary companies
• Mutual companies
• Captive companies
• Protected cell companies
• Lloyd’s

Question 10

What act are most proprietary insurance companies registered under?

Answer 10

Companies Act 1985

Question 11

What are proprietary companies owned by?

Answer 11

Shareholders

Question 12

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

Answer 12

The share capital of the firm

Question 13

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

Answer 13

Expenses + reserves

Question 14

Are proprietary companies limited liability companies?

Answer 14

No

Question 15

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

Answer 15

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

Question 16

Proprietary companies - What is the nominal value of shares

Answer 16

The originally stated face value of the shares

Question 17

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

Answer 17

The general public

Question 18

Who are mutual companies owned by?

Answer 18

Policyholders

Question 19

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

Answer 19

Lower premiums

Question 20

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

Answer 20

Any losses made by the company

Question 21

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

Answer 21

A policyholders maximum liability is limited to their premium

Question 22

What are mutual indemnity associations?

Answer 22

Self-managed pools of insurers

Question 23

Who are mutual indemnity associations owned by?

Answer 23

Policyholders

Question 24

What are mutual indemnity associations primarily active in?

Answer 24

Marine insurance

Question 25

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

Answer 25

Marine hull liability

Question 26

What is a Captive insurance company established by?

Answer 26

Its parent company/group

Question 27

What do Captive insurance companies provide insurance for

Answer 27

The parent company

Question 28

Captive insurance is a ____ method of transferring risk

Answer 28

Tax-efficient

Question 29

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

Answer 29

* 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

Question 30

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

Answer 30

Offshore locations - because of favourable tax regimes

Question 31

Do captive insurers offer insurance to the general public?

Answer 31

No

Question 32

What is an incentive for captive insurance?

Answer 32

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

Question 33

What is a protected cell company?

Answer 33

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

Question 34

What does a PCC do?

Answer 34

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

Question 35

Is a PCC single legal entity?

Answer 35

Yes

Question 36

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

Answer 36

Manage the affairs of the PCC as a whole

Question 37

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

Answer 37

The PCC's Memorandum and Articles of Association

Question 38

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

Answer 38

The PCC board

Question 39

PCC - What are 2 benefits to using a PCC?

Answer 39

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