M92

Question 1

What is a Proprietary company?

Answer 1

Proprietary companies have an
authorised and issued share capital to which the original shareholders subscribed, and it is
to the shareholders that any profits belong after provision for expenses, reserves and, in the
case of life business, with-profit policyholders’ bonuses

Question 2

What is a proprietary company liable to?

Answer 2

The shareholders’ liability is limited to the nominal value of their shares (hence the term
limited liability), but the company is liable for its debts and if the solvency margin cannot be
met the company risks going into liquidation.

Question 3

Insurers purchase
reinsurance for two basic needs:

Answer 3

• To limit (as much as possible) annual fluctuations in the losses that affect their
  underwriting account, often referred to as ‘smoothing the underwriting result’.
• To be protected in case of a catastrophe (both man-made and natural).

Question 4

What is a Mutual company?

Answer 4

A financial mutual is an organisation that supplies financial services products, and which is
owned by its customers, or members.

Question 5

what is the benefit of a Mutual company, compared to a proprietary company?

Answer 5

The shareholder in the proprietary company receives their share of the profit by way of
dividends, but in the mutual company the policyholder owner may enjoy lower premiums or
higher life insurance bonuses than would otherwise be the case, as profits are returned to
policyholders.

Question 6

What is a problem of mutual status?

Answer 6

A feature of mutual
status is a difficulty in raising additional capital since they cannot issue additional shares in
the way that proprietary companies can.

Question 7

What is Lloyds, how does it operate?

Answer 7

Lloyd’s does not itself transact insurance, as this is the business of the underwriting
members of Lloyd’s (both individual and corporate) who make up the Lloyd’s market. The
members underwrite for their own profit and loss in administrative groups called syndicates.

Question 8

What do managing agents do, at lloyds?

Answer 8

The underwriting members appoint independent companies known as managing agents to carry out the underwriting business (agree cover and price and pay the claims etc.) on their behalf.

Question 9

What is the aim of the franchisor model, used at lloyds?

Answer 9

The aim of this structure is to improve
market profitability and allow monitoring and guidance of franchisees, with Lloyd’s (as
franchisor) approving business plans and new syndicate applications and having ultimate
power to eject businesses that are unable to comply with Lloyd’s requirements.

Question 10

what is the benefit of the captive market?

Who would use it?

Answer 10

Captive insurance is a tax-efficient method of transacting risk transfer, which has become
more common in recent years among the large national and multinational companies.

Captive insurance is utilised by those businesses that choose to put their
own capital at risk by creating their own insurance company.

Question 11

Main incentives of captive insurance companies

Answer 11

• to obtain the full benefits of the group’s risk control techniques by paying premiums based
  on its own loss experience;
• avoidance of the direct insurers’ overheads;
• obtaining a lower overall risk premium level by purchasing reinsurance at a lower cost
  than that required by the conventional or direct insurer; and
• to achieve their risk financing objectives

Question 12

what is Takaful insurance?

Answer 12

Takaful is a type of insurance that has its roots in the Islamic financial services industry. The
model has been developed over a period of time and is based on the rulings of Sharia law on
financial and commercial transactions. It works on the principle that in any transaction risk
and profit (and loss bearing) should be shared between the participants.

Question 13

Under Islamic (Sharia) law, traditional insurance policies are seen by Muslims to be contrary
to some of the fundamental principles of Islam. This is because they involve:

Answer 13

Gharar (uncertainty) – Islamic law forbids sales where there is risk to the buyer, unless
the risk is of a normal or reasonable proportion.

Maisir (gambling) – traditional insurance policies are seen to be a sort of gambling
because some policyholders receive payouts whilst others do not

Riba (interest) – Islamic rules also forbid making money from money, such as through
interest.

Question 14

What is the most common provided form of reinsurance?

Answer 14

The most common is a treaty whereby the
reinsurer agrees to take a part of all the insurances that the direct insurer underwrites. A
treaty is usually an annual contract agreed in advance and its terms are fixed. In this way,
both the insurer and reinsurer have certainty over the reinsurance deal for the coming year.

Question 15

What is a proportional and non-proportional treaty?

Answer 15

A proportional treaty is where the insurer and reinsurers take a stated proportion of each risk
and share the premium (and claims) on the same basis. Non-proportional business allows an
insurer to retain the first part (or layer) of cover and transfer the balance to the reinsurers.

Question 16

What is a facultative?
When is it used?

Answer 16

where each reinsurance
requirement is negotiated individually. This format is used when the insurer wishes to transfer cover that is outside of the treaty arrangements, such as when an individual building value is very high.

Question 17

What is the difference between Self-insurance and non-insurance?

Answer 17

You should note the difference between self-insurance, where a conscious decision is
made to create a fund, and non-insurance, where either no conscious decision is made
at all, or where no fund is created

Question 18

What is the London market?

Answer 18

The London insurance market is a distinct, separate part of the UK insurance and
reinsurance industry centred in the City of London. It comprises insurance and reinsurance
companies, Lloyd’s of London syndicates, marine protection and indemnity clubs (P&I clubs),
and brokers who handle most of the business.

Question 19

Who are the main participants in the London market?

Answer 19

The main participants in the London Market:
* Insurance companies operating from London establishments that are members of the
International Underwriters Association (IUA), including branches or subsidiaries of foreign
companies.
* Other insurance companies with London underwriting offices.
* The contact offices of foreign companies not authorised to transact business in the UK.
* P&I clubs – these marine associations (clubs) insure liabilities for cargo, crew,
passengers, and third parties.
* Pools – there are two in the London Market: International Oil Insurers and the British
Insurance (Atomic Energy) Committee. Both operate on a net lines basis, i.e. insurers
participating in the pool must retain for their own accounts the business that they write
and not seek to transfer any to reinsurers.
* Lloyd’s of London.
* Insurance brokers – the introduction of the Legislative Reform (Lloyd’s) Order 2008
removed the restriction that only Lloyd’s-authorised brokers could place business via
managing agents with Lloyd’s syndicates.

Question 20

What are the several factors that have allowed London to devlop into a successful international centre for insruance, and reinsurance?

Answer 20

Political and economic
stability

Geographical location

Quality transport system

Highly qualified
personnel

Office space at
competitive prices

English is the business
language

Stable legal and
regulatory environment

Time zone

Foreign presence

Developed financial
centre

Question 21

What are the differnet sellers and distributors of insruance?

Answer 21

• Direct insurers.
• Independent intermediaries and agents.
• The internet.
• Price comparison websites/aggregators.
• Banks and building societies.
• Affinity groups, including retailers and membership groups.
• Market disruptors.

Question 22

What are business ethics?

Answer 22

Business ethics are the standards and moral conduct that a company or business sets
itself in its dealings within the organisation and outside within the business and social
environment.

Question 23

Why does ethical issues now frequently play an important part in management :

Answer 23

• Large organisations can have revenue income which is often more than small nations.
  Therefore, how these companies use their wealth can have implications for the well-being
  of the countries in which they operate.
• Responsibility and power are closely interlinked. For example, senior managers in large
  companies occupy positions that can impact on promoting or affecting the interests of
  large numbers of employees. They may take decisions that can affect whole
  communities.
• Consumers and consumer groups now increasingly judge organisations by the way they
  handle ethical and environmental issues.
• As strategic business decisions are partly determined by the cultural influences of
  societies, cultural factors can affect the moral thinking of managers.

Question 24

Under the Code of Ethics - all members must follow what?

Answer 24

Under the current Code, members must do the following:
1. Comply with the Code and all relevant laws and regulations.

2. Act with the highest ethical standards and
   integrity.
3. Act in the best interests of each client.
4. Provide a high standard of service.
5. Treat people fairly regardless of: age, disability, gender reassignment, marriage and civil
   partnership, pregnancy and maternity, race, religion and belief, sex and sexual
   orientation.

Question 25

Benefits of organic growth?

Answer 25

Organic growth also:
* involves less risk than external growth (e.g. through mergers and takeovers);
* can be financed through internal funds (e.g. retained profits).
* builds on a business’ existing strengths (e.g. brands, customers).
* allows the business to grow at a more sensible rate in the long run; and
* can be more economic compared with acquisitions.

Question 26

Disadvantage of organic growth

Answer 26

• With the organic growth route a business usually needs more time to grow as it requires
  employees who can handle the growth process along with other actions that are needed
  to move the business forward. This can mean an enormous commitment of time and
  resources as personnel may need to be found, recruited and trained, premises and
  equipment acquired, sales conduits established with extensive marketing to get products
  known in their new field.
• Building a business organically will take longer to achieve than a purchase of an existing
  book of business, which may not meet investors’ expectations.

Question 27

Difference between a merger and acquisitions.

Answer 27

A merger only happens if two companies
agree to join forces on a strategic basis, while an acquisition is where a company gains
control of another company by purchasing a majority shareholding.

Question 28

Other then achieve growth, that are the other reasons for growth?

Answer 28

• As duplication is removed, efficiency and improved performance can be gained through
  synergy of processes or economies of scale by lowering unit costs.
• Overcoming the cost of IT by being large enough, through the sharing of resources,
  which are becoming ever more expensive if the latest IT platforms are to be used.
• Provides investment opportunities if an insurance company has spare capital.
• Two companies joining together to spread risk. For example, if one is based in the USA
  and one is based in Europe, and the two books of business are uncorrelated, this will give
  the new company greater diversification and therefore they are likely to have a lower
  solvency capital requirement than if they remained as separate companies.

Question 29

What are the disadvantage of M&As?

Answer 29

• Reduced customer choice through the reduction in the number of organisations offering
  products to customers. This means there can be a reduction in competition.
• Impact on staff affected and cost of redundancies. Staff morale can be impacted
  considerably, especially if the whole change process is not managed effectively. Often the
  cost of redundancies and/or staff redeployment is high with a significant loss of valuable
  staff experience, skills and knowledge.
• Clash of corporate cultures. If these are very different from one another it may be difficult
  to agree on a cultural approach that will enable the organisations to work together
  effectively and move forward.
• ‘Eye off the ball’ while change is taking place. Often a merger or acquisition will consume
  a large amount of senior management time. As a result, the organisation’s energies may
  be directed towards the change process instead of growing the business and delivering
  an effective service to customers.
• Reduced customer service while changes are being implemented. Any number of factors
  may impact on customer service, such as reduced staff morale, lack of communications,
  staff not knowing what is going on or what products they are to sell or what they are to
  say to customers with a consequent increase in complaints and loss of business.
• Expected M&A savings not actually being realised. Whenever a merger or acquisition is
  announced, forecasts are made by the directors as to the costs that can be saved and
  how shareholder value will be improved. Often these savings do not come to full fruition
  or are not properly measured so the real value of the change is not clearly evident.

Question 30

What are the advantages of outsourcing

Answer 30

• Where a business change process is to be set in operation, for example in establishing a
  new accounts system or building an actuarial pricing model for underwriting, the firm can
  use external specialists to assist with the task and only incur the costs for the work
  completed.
• The business is guaranteed a certain level of service as set out within the contract.
• The business can budget for a pre-agreed fixed cost for the agreed service.
• Outsourced companies are typically specialists within their area and will bring new skills
  and working methods to a company.
• Many outsourcing contracts lead to new partnership opportunities between the business
  and the outsourced company, as they learn new ways of doing business processes.
• The business may increase its capability to develop new products and their speed to
  the market.
• The businesses that do outsource have more time to focus on their core business areas.

Question 31

What are the disadvantages of outsourcing?

Answer 31

• Any form of contract that allows the business to outsource processes will mean that a
  certain control and direction will be lost.
• In the event of poor service, the business will lose customers and the firm’s reputation will
  suffer. Customers will either not be interested or aware that the diminished services are
  caused by a poor supplier of services.
• Extreme care should be taken with customers’ confidential information and data should
  be protected equally well at outsourced suppliers as it is within the firm. Care needs to be
  exercised when engaging an outsourced service provider located overseas, as data
  protection law restricts the transfer of personal data overseas in certain circumstances.
• If the business is too dependent on a limited number of suppliers then it will be open to
  higher costs where competition may be lacking.
• If the outsourced company gets into financial problems the business will be faced with
  problems of finding an alternative provider, possibly at short notice.
• Full understanding of customer behaviour and satisfaction can be lost if communication
  between the business and outsourced company is inadequate. This is an increasing
  concern when firms desire to be close to their customers and create a loyal
  customer base.

Question 32

Regulatory requirements and outsourcing.

What reasonable steps that firms must ensure?

Answer 32

• there is no undue additional operational risk in outsourcing an activity as opposed to
  retaining the function in-house;
• the quality of internal control is not impaired;
• the ability of the regulators to monitor the firm’s regulatory compliance is not hampered by
  any outsourced arrangements.

Question 33

What are the requirements of the European insurance and Occupational Pernsions Authority

Answer 33

These include the requirements for the terms of an outsourced contract to cover the:

• clearly-stated duties and responsibilities of both parties;
• service provider’s commitment to comply with all applicable laws, regulatory requirements
  and to cooperate with the firm’s appropriate regulator;
• disclosure of any development which may have a material impact on the service
  provider’s ability to carry out the outsourced functions and activities;
• notice period for termination by the service provider, which must be sufficient to allow the
  firm to make alternative arrangements;
• access the firm, its external auditors and regulators will have to all information related to
  the outsourced function; and
• firm’s need to ensure the outsourced provider has effective risk management and internal
  controls.

Question 34

What is Malware?

Answer 34

A form of malicious software that can install itself in your systems via
phishing scams and by exploiting software vulnerabilities. Once installed,
the attacker can spy on online activities and steal private data

Question 35

What is Ransomware

Answer 35

A form of malware that attacks your computer system and encrypts data.
The attacker will then demand a ransom payment in exchange for the
return of the data.

Question 36

What is Hacking

Answer 36

A term used for the partial or complete acquisition of a computer system
or certain functions within it.

Question 37

What is Lloyd’s Product Launchpad

Answer 37

Lloyd’s Product Launchpad encourages and supports product innovation for non-standard
risks that might not fit the traditional market such as risks relating to intangible assets, new
technologies and others.

Question 38

What is the role of the Chair within a board of directors?

Answer 38

An important duty of the chair is to ensure that meetings are run in an orderly
and efficient manner. In addition, the chair is often the organisation’s representative to the
outside world.

Question 39

What is the charastrics of the Executive director?

Answer 39

• Work full time in the company.
• Given management responsibility for running parts of the business.
• One is usually appointed by the board to be accountable for the
  running of the company on a day-to-day basis – known as either the
  chief executive officer (CEO) or managing director.
• CEO/managing director appoints the company management.

Question 40

What is the charastrics of the non - excutive director?

Answer 40

• Work part time in the company.
• Chosen for their particular area of expertise.
• Do not perform an executive management role in the company.
• Attend board meetings and may be members of subcommittees in
  order to provide independent views on matters such as audit,
  management remuneration and risk management

Question 41

What are the responsilities of the board?

Answer 41

1. Regulation of the executive directors and other members of the senior management team
   to ensure they uphold the shareholder interests and the laws governing the conduct of
   the business.
2. Approve the report and accounts, annual budgets, strategy and other important plans.
3. Selecting, appraising and rewarding the CEO and ensuring succession planning is
   actively addressed.
4. Overseeing the risk management process and ensuring the necessary actions are
   adopted to mitigate against identified risks.
5. Ensuring that the company’s integrity and principles are upheld on critical matters such as
   financial reporting accuracy, legal and regulatory compliance, as well as adherence to the
   company’s stated ethical standards.

Question 42

What is the Corporate Governance Code

Answer 42

A document setting
the corporate governance standards for the UK. It sets out standards of good practice in relation to issues such as:

• board composition and development;
• remuneration;
• accountability and audit; and
• relations with shareholders.

Question 43

What is the role of the CEO/managing director?

Answer 43

The managing director, as well as being
a director, is responsible for the business’s functions and day-to-day activities of the
company. Directors help to formulate the company objectives and policy and they organise
resources in order to translate the board policy into operational activities. They will also lead
in the organisation’s culture and management style.

Question 44

What is the role of the Finance director?

Answer 44

The FD would typically have responsibility for, or at least significant influence over, the
following:

• The economic capital model to assist in the determination of the appropriate level of
  capital for the company to hold.
• Stress and scenario testing to assist in the determination of the amount of extreme risk
  the company may be subject to.
• Proposals to the board on the form of capital to hold in addition to equity capital, such as
  subordinated debt.
• Preparation of papers for the board to assist in the determination of the appropriate level
  of dividend to pay to shareholders.
• Making recommendations to the board on the appropriate level of claims provisions
  to hold.
• Preparation of the statutory accounts of the company for approval by the board and
  shareholders.
• Making presentations to, and managing the relationships with, the investment analysts
  who prepare reports on the company’s performance and holders of the company’s debt.
• Preparation of the financial information required by the PRA and be one of the main
  contacts the PRA has with the company.
• Preparation of the management information, such as leading indicators of financial
  performance, for the executive team and the board.
• Management of debt, cash flow, liquidity and treasury matters.
• Management of the investment portfolio.
• Management of the financial aspects of the planning process, the budgetary process and
  the forecast process.
• Preparation for the reviews by rating agencies.
• Preparation and planning for the statutory external audit conducted by the independent
  auditors.
• Management of the reinsurance accounting process.

Question 45

What is the company secretary?

Are companies obliged to have one?

Answer 45

All public companies are obliged to have a company secretary.

The company secretary is an officer of the company and their duties can be wide ranging.
While the Companies Act does not generally specify the role of the company secretary, they
usually undertake the following duties:
* Maintaining the company’s statutory books.

• Filing annual returns at Companies House.
• Arranging meetings of the directors and the shareholders.
• Informing Companies House of any significant changes in the company’s structure or
  management.
• Establishing and maintaining the company’s registered office as the address for any
  formal communications.
• Ensuring the security of the company’s legal documents, including for example, the
  certificate of incorporation and memorandum and articles of association.
• Deciding on the company’s policy for the filing and retention of documents.
• Advising directors on their duties and ensuring that they comply with corporate legislation
  and the articles of association of the company.

Question 46

What is the role of the chief actuary?

Answer 46

• technical pricing of new and existing products;
• calculation of claims reserves;
• calculation of risk-based capital requirements;
• assessment of investment risk for funds supporting technical reserves.

Question 47

Benefits of efficient internal communication
Efficient internal communication will help the organisation to:

Answer 47

• bring about change in the culture and structure of the business more quickly;
• achieve a low turnover of employees, improved motivation and mutual trust;
• facilitate decision making, as employee participation in the decision-making process not
  only increases the quality of the decision but ensures better implementation;
• encourage staff to be cooperative and innovative; and
• ensure that all relevant members of staff are helping to meet corporate objectives.

Question 48

What are the primary responsibilities of a team leader?

Answer 48

Providing direction and guidance

Understanding the strengths and
weaknesses of team members

Organising tasks and setting goals

Upholding the vision of the group

Solving problems and resolving
conflicts

Question 49

Describe the paternalistic management style?

Answer 49

The company looks after its employees in a fatherly way, and the employees
respect the organisation’s managers in the way that children respect their
parents; this style is sometimes perceived as too interfering.

Question 50

What is strategic planning?

Answer 50

Strategic planning is a process whereby the future direction of the business entity is
decided upon and a statement (the plan) is developed detailing long-term goals together with
a definition of the strategies and policies, which will ensure achievement of those goals.
Such goals typically cover periods of between three and ten years.

Question 51

Why in Strategic planning is control important?

Answer 51

Control is the process by which management assures itself that actions taken by staff
conform to the management’s plans and policies. A series of milestones are identified, which can be tracked over time. These serve as benchmarks for evaluating strategic and
operational performance and provide early warning of deviations from expected outcomes.

Question 52

What is the balanced scorecard?

Answer 52

Briefly summarised, balanced scorecards identify the knowledge, skills and systems
(learning and growth) that employees will need in order to innovate and build the right
strategic capabilities and efficiencies (the internal processes) that deliver specific value to
the marketplace (the customers), which will eventually lead to higher shareholder value (the
financials).

– IT attempts to take a holistic view of an organisation and coordinates its resources so that efficiencies are experiance by all departments and in a joined -up fashion.

Question 53

Why do business leaders, and manger believe in the balanced scorecard?

Answer 53

because it:
* tethers the company to strategy execution;

• aligns every member of the organisation to the same mission and vision;
• makes organisations more responsive to abrupt changes;
• presents the health of an organisation;
• enhances transparency;
• connects projects to measurements and measurements to strategy.

Question 54

What are the three types of benchmarking that is commanly used?

Answer 54

• Internal – these compare the performances of divisions and departments within the same
  organisation.
• External – these contrast the company’s overall performance with competing firms, e.g.
  profitability, rate of return on capital employed, growth, market share.
• Functional – this covers an assessment of the company’s main functions and processes
  and compares them against the same functions and processes in other organisations but
  not necessarily competitors.

Question 55

What is needed for benchmarking to be succesful?

Answer 55

comprehensive and accurate information is available on competing or comparable
industries;

• benchmarks are based on industry best practice;
• benchmarks used are flexible and can be altered if the external environment changes;
• benchmarks relate to the company’s corporate strategies and plans;
• there are sound internal audit processes in place.

Question 56

What is MBO?

Answer 56

Management by objectives: MBO is a process of defining objectives within an organisation so that both management and
employees agree to the objectives and understand what they need to do in order to achieve
them. MBO is appropriate for knowledge-based organisations such as insurance companies.

Question 57

What are some advantages of MBO?

Answer 57

• Motivation – involving employees in the whole process of goal setting and increasing
  employee empowerment. This increases employee job satisfaction and commitment.
• Better communication and coordination – frequent reviews and face-to-face interactions
  between managers and employees help to maintain harmonious relationships within the
  organisation and also to solve many problems.
• Clarity of goals using the SMART methodology.
• Employees tend to have a higher commitment to objectives they set for themselves than
  those imposed on them by another person.
• Managers can ensure that objectives of the employees are linked to the organisation’s
  objectives.
• A common goal for the whole organisation means it is a directive principle of
  management.

Question 58

What are some disadvantages of MBO?

Answer 58

• Employees may believe that MBO is another management ploy to ensure subordinates
  work harder and become more dedicated and involved.
• There is the potential for considerable paperwork and/or meetings.
• The emphasis is more on short-term goals.
• It does not leave any ground for subjective goals as these may be difficult to quantify and
  even more difficult to evaluate.
• Managers may not be sufficiently skilled in interpersonal interaction, such as coaching
  and counselling, which is extensively required.
• Managers and employees who are wholly focused on objectives might be prone to distort
  results to achieve their individual short-term goals.

Question 59

What is an important note about Bugeting and control?

Answer 59

Managers also need to be able to control the activities of the organisation to enable it to
meet its strategic objectives. To this extent, the budget is not only a plan, but also a target
and a tool that the managers use to exercise organisational control. The budget must not,
therefore, be seen as a one-off exercise at the beginning of the financial period; it is a
mechanism for monitoring the progress of the organisation in financial terms over a period of
time and it also, therefore, becomes a means by which performance will be assessed at
some point in the future.

Question 60

What is top down budgeting?

Answer 60

The owners or directors
decide on the individual plans for each department and function and these plans are given to
the individual managers to implement. While this approach is easy to operate it may become
remote from the realities of the marketplace

Question 61

What is Bottom up budgeting?

Answer 61

Individual department
managers construct their own budgets, within set guidelines. These are then passed up to
the managers and directors, who incorporate the individual budgets into the organisation’s
master budget.

Question 62

What is a fixed budget?

Answer 62

A fixed budget is not changed once it has been established, regardless of any alterations in
the organisation’s performance in reality. Projected figures are compared against actual
figures at the end of the budget period.

Question 63

What is a flexible budget?

Answer 63

A flexible budget is changed in accordance with the organisation’s real activity levels over
time. For example, if salary costs increase unexpectedly halfway through the budget period,
the budgeted figures for these costs will be altered on the budget document, to show the true
picture.

Question 64

What is zero-based budgeting?

Answer 64

The ZBB method relies on managers to justify their expenditure from a fresh standpoint.
Rather than looking at the amount of expenditure, which was budgeted for an item in the
previous budget period, ZBB requires managers to start a position of having nothing in their
budget for the item in question.

Question 65

What is Rolling Budgeting?

Answer 65

Rolling budgets are budgets that constantly look forward. With a conventional twelve-month
budget, monthly figures might be produced prior to a future budget period, such as from
January to December

Question 66

What are the five C’s of decision making?

Answer 66

consider, consult, crunch, communicate
and check.

Question 67

What are the three different type of information that can be analysed?

Answer 67

Strategic information - This refers to the “what” and “why” the business chooses to do something.

Tactical information This helps an organisation to identify “how” they plan to accomplish their strategic objectives

Operational information This relates to the day-to-day operations of the organisation and thus, is useful in exercising control over the operaations.

Question 68

What does MIS stand for, and what does it do?

Answer 68

A management information system, or MIS, collects data from many different sources and
then process is and organises the data to help businesses make decisions.

Question 69

What are the basic features of a MIS?

Answer 69

• Information flows horizontally and vertically. It is with the vertical flow (between managers/
  team leaders and team members) that management information systems are most
  concerned.
• Reports generated by an information system will range between:
  – information for low-level management about the small area of the organisation under
  their control;
  – reports of a broader nature for top-level management concerned with overall control.
• The centre core of an MIS is likely to be tactical information for management control,
  although the MIS will have many sub-systems and sub-sub-systems providing information
  ranging from operational through tactical to strategic.
• The control cycle (i.e. the comparison of actual results against a plan and the production
  of exceptional reports to show where control action may be needed) cannot be effective
  unless the plan is carefully prepared.
• A precise and carefully drawn-up specification of the areas of management responsibility
  is essential. This specification is necessary to ensure that information will flow to the
  managers who need it.
• The information produced must be able to measure actual results against the plan in such
  a way that control decisions can be taken at all levels of management. Data must also be
  available to enable senior management to plan for the future and computers are of
  special value in preparing forecasts from large quantities of data.

Question 70

What are the two main approaches to knowledge managerment?

Answer 70

1)codification strategy.
In most such organisations, knowledge is carefully codified and stored in databases, where it can be accessed and used easily by appropriate employees.

2) personalisation strategy.
In other, more specialised, financial services organisations, knowledge is closely tied to the
person who developed it and is shared mainly through direct person-to-person contacts and
structured training programmes.

Question 71

What is coroprate governace?

Answer 71

It is the process by which company objectives are established,
achieved and monitored. Corporate governance is also concerned with the relationships and
responsibilities between the board, management, shareholders and other relevant stakeholders within a legal and regulatory framework.

Question 72

Whar are the most important element of good corporate goverance?

Answer 72

Transparency and accountability are the most important elements of good corporate
governance.

Question 73

What is the mission of the Financial Reporting Council?

Answer 73

The FRC’s mission is to promote transparency and integrity in business. It sets the UK corporate governance and stewardship codes and UK standards for accounting and actuarial
work, monitors and takes action to promote the quality of corporate reporting, and operates
independent enforcement arrangements for accountants and actuaries.

Question 74

Look at 2018 Uk corporate goverance code !

Answer 74

page 3 charpter 4

Question 75

Is compliance with the Corporate Governance code legally required?

Answer 75

NO
UK companies are not legally required to comply with the Corporate Governance Code,
but if the firm is listed on the London Stock Exchange then compliance (or an explanation
as to why the firm is not compliant with the Code) is required under the Listing Rules.

Question 76

Look up the FRC guidance on Audit committes

Answer 76

Page 6 chapter 4.

Question 77

What does companies house do?

Answer 77

Companies House keeps the public records of companies registered in the United Kingdom.
It lists its three statutory functions as to:

• incorporate and dissolve limited companies;
• examine and store company information delivered under the Companies Act and related
  legislation; and
• make this information available to the public.

Question 78

What is the importance of companies house, with regard to registration?

Answer 78

To gain official recognition, a company must be registered with Companies House. Until the
company is registered, it has no legal existence. It therefore cannot enter into contracts or
undertake any business.

Question 79

What are the documents needed for registration?

Answer 79

• the company’s name;
• whether the company is a private or public company;
• whether the liability of the members of the company is to be limited, and if so whether it is
  to be limited by shares or by guarantee;
• the situation of the company’s registered office, i.e. whether it is in England, Wales,
  Scotland or Northern Ireland;
• the address of the registered office (which must be the same as the situation of the
  registered office);
• the statement of the proposed officers; and
• the proposed Articles of Association.
  Chapter 4
  4/8 M92/April 2023 Insurance business and finance

Question 80

What are the statutory reporting requirments - that are legally reuired to be submitted to companies house?

Answer 80

1) Confirmation statement (annual return).
- This contains a range of information including the company’s
registered office address, the principal business activities of the company, details about the
company’s directors, company secretary (where applicable), shareholders and the company’s share capital.

2) Report and accounts
- The Companies Act requires that every company must keep accounting records which are sufficient to show and explain the company’s transactions, and as such to:
* disclose with reasonable accuracy, at any time, the financial position of the company at
that time; and
* enable the directors to ensure that any accounts required to be prepared comply with the
requirements of the Act.

By law, a company’s annual accounts must give a true and fair view of its economic state.

3) Directors’ report
- This is a bsuiness review, which should be a ‘fair review of the company’s business and a description of the principal risks and uncertainties facing
the company’.

4) Directors’ remuneration report
- Details must be given of directors’ service contracts, salaries, fees, bonuses, share options,
long-term incentive schemes, pensions, retirement benefits, compensation for past directors, and sums paid to third parties for directors’ services.

5) Chairman’s statement
- This is normally a broad
statement about the company’s activities attributed to the company’s chairman.
–The external auditors are not required to judge whether the content of either the directors’ or
chairman’s statements provides a ‘true and fair view’.

Question 81

Compainies house - submission of annual accounts. What are the special rules?

Answer 81

Private companies must file their accounts
within nine months of the year end and public companies must file within six months. In
addition, quoted companies must ensure that their report and accounts are available on a
website.

Late delivery of accounts to Companies House is likely to result in penalties. Failing to
deliver accounts on time is also a criminal offence for which company directors and the
company secretary may be prosecuted.

Question 82

What does the companies act 2006 state about the company secrtary?

Answer 82

A company should secure that the secretary…of the company is a person who
appears to them to have the requisite knowledge and experience to discharge the
functions of secretary of the company.

Question 83

What does the comapnies act 2006 state about the requirments accetpable qualificatios of the comaonies secretary?

Answer 83

by virtue of his holding or having held any other position or his being a member of any
other body, appears to the directors to be capable of discharging the functions of secretary
of the company

Question 84

What is the role of a company seretary include?

Answer 84

• guiding the chairman and board on their responsibilities under the rules and regulations
  to which they are subject and on how those responsibilities should be discharged;
• supporting the chairman in ensuring the board functions efficiently and effectively;
• ensuring good information flows within the board and its committees and between senior
  management and non-executive directors, as well as facilitating induction and assisting
  with professional development as required;
• maintaining good shareholder relations and keeping the board informed on
  shareholders’ views;
• developing and overseeing the systems that ensure that the company complies with all
  applicable codes, in addition to its legal and statutory requirements;
• monitoring changes in relevant legislation and the regulatory environment and taking
  action accordingly;
• overseeing the day-to-day administration of the company, e.g. maintaining statutory
  books, including registers of members, directors and secretaries, organising board
  meetings and AGMs, preparing agendas and taking minutes; and
• having responsibility for facilities, HR, insurance, investor relations, pension
  administration, premises and share registration (this only applies to some company
  secretaries).

Question 85

Risk managermant in corporate governace - what are the lines of defence?

Answer 85

‘First line of defence’
Once a risk strategy is set, with an associated control environment, it is primarily the responsibility of front-line managers to ensure that risks are identified and controlled in keeping with the strategy and control environment.

‘Second line of defence’
Although the risk management department will be actively involved in discussing the most
appropriate and effective controls to be put in place, accountability for the delivery of risk control remains with operational management.

‘Third line of defence’
The internal audit team has the responsibility of reviewing, from time to time, the overall risk
management operation – ensuring that the risk management strategy agreed by the senior
management or board is being actively complied with.

Question 86

What is the core role of an audit committee?

Answer 86

Scrutinise the robustness of the control framework
and to assess its application in practice. The UK Corporate Governance Code states that the
audit committee should consist of a minimum of three directors, with independent directors
forming a majority.

Question 87

What are freshholds thatneed to be met for a company to be required to get a external audit?

Answer 87

Two of the below must be met.

• a turnover exceeding £10.2m;
• net assets exceeding £5.1m; or
• more than 50 employees.

Question 88

What must a external audit’s report state clearly on?

Answer 88

The report must state clearly whether, in the auditor’s opinion, the annual accounts:

1. give a true and fair view:
   * in the case of an individual balance sheet, of the state of affairs of the company as at
   the end of the financial year,
   * in the case of an individual profit and loss account, of the profit or loss of the company
   for the financial year,
   * in the case of group accounts, of the state of affairs as at the end of the financial year
   and of the profit or loss for the financial year of the undertakings included in the
   consolidation as a whole, so far as concerns members of the company;
2. have been properly prepared in accordance with the relevant financial reporting
   framework; and
3. have been prepared in accordance with the requirements of this Act (and, where
   applicable, Article 4 of the IAS Regulation).

Question 89

What companies need to do climate risk reporting, and what is needed to be disclosed?

Answer 89

As of 6 April 2022 over 1,300 of the largest UK registered companies and financial
institutions will be required to disclose climate related financial information on a mandatory
basis, using guidelines from the task force on climate related financial disclosures.

Specifically for the environment, climate related disclosures include:

• climate change-related risks and opportunities;
• how these risks and opportunities are managed through targets and KPIs;
• how climate change is addressed in corporate governance;
• how climate risk impacts strategy.

Question 90

What are the data protection principles under the Uk GDPR?

Answer 90

1. Lawfulness, fairness and transparency: data should be processed lawfully; data should be handled in ways people would expect giving consideration to the effect of processing the data on the individuals concerned; and there should be full compliance with the obligations of the ‘right to be informed’.
2. Purpose limitation: data should only be collected for specified, explicit and legitimate purposes and not further processed in a manner that is incompatible with those purposes.
3. Data minimisation: data should be adequate, relevant and limited to what is necessary in relation to the purposes for which it is processed.
4. Accuracy: data should be accurate and, where necessary, kept up to date.
5. Storage limitation: kept in a form which permits identification of data subjects for no longer than is necessary for the purposes for which the personal data is processed.
6. Integrity and confidentiality: data should be processed in a manner that ensures appropriate security of the personal data, including protection against unauthorised or unlawful processing and against accidental loss, destruction or damage, using appropriate technical or organisational measures.

Question 91

What are the six lawful bases for processing data?

Answer 91

1) Consent - Consent must be a freely given, specific, informed, and unambiguous indication of the
individual’s wishes.

2) Contract - The processing is necessary for a contract a firm has with the individual, or because they
have asked the firm to take specific steps before entering a contract.

3) Legal obligation

4) Vital interests - The processing is necessary to protect an individual’s life.

5) Public task - The processing is necessary for a firm to perform a task in the public interest or for its official functions, and the task or function has a clear basis in law.

6)Legitimate interests
The processing is necessary for a firm’s legitimate interests or the legitimate interests of a third party, unless there is a good reason to protect the individual’s personal data which overrides those legitimate interests.

Question 92

What is the ICO?

Answer 92

In the UK compliance with data protection legislation is overseen by an independent government authority, the Information Commissioner’s Office (ICO).
The ICO upholds information rights in the public interest, promoting openness by public bodies and data privacy for individuals.

Question 93

WHat are the power that the ICO have?

Answer 93

The ICO have powers to regulate and enforce data protection laws.

• For the most serious data breaches, it can levy fines of up to £17.5 million or 4% of annual global turnover.
• The ICO can bring criminal proceedings against a data controller or processor if they have altered records following an SAR with the intent to prevent disclosure.

Question 94

What is the Pure risk Premium?

Answer 94

Pure risk premium is that part of the premium necessary to pay for losses and loss-related expenses only. It excludes other expenses such as sales and marketing and any allowance for profit.

Question 95

Define MGA.

Answer 95

managing general agent
the MGA organisation not
only ‘holds the underwriting pen’ of the insurer, it also undertakes all the other activities of an insurer such as marketing, selling, and administration.

It does not, however, provide the funding for claims, although it may undertake claims payments from a fund provided by the
insurer.

Question 96

Why would you form a partnership with an MGA?

Answer 96

Typically, the principals and staff of the MGA will have
specific expertise in a given sector. This means the insurer can gain access to a hopefully profitable stream of revenue, without the expense of committing its own staff and resources.

Question 97

What is a line slip?

Answer 97

A line slip is an agreement between an individual broker and a group of two or more insurers or underwriters whereby each insurer or underwriter agrees to accept a preagreed proportion of a specified type of insurance.

General criteria for risk acceptance and
terms and conditions are agreed at the outset between the insurers and underwriters and there is usually some form of pre-agreed rating (pricing) scheme used for premium calculation.

Question 98

What are the role of the compliance team?

Answer 98

*communicating to all relevant staff the regulatory requirements of their role as well as any
updates or changes that are introduced;

• acting as the point of contact for regulators in their dealings with the firm;
• checking individual sales to ensure all customer protection procedures have been
  carried out;
• carrying out anti-money laundering and anti-fraud procedures (usually undertaken by a
  sub-unit of the compliance department);
• ensuring proper credit checks are carried out;
• dealing with customer complaints fairly;
• developing new compliance procedures;
• auditing current processes and practices to make sure they conform to regulations;
• ensuring all members of staff carrying out controlled functions (as defined by the
  regulator) are duly registered as Approved Persons;
• arranging or undertaking training for key regulatory or legal issues such as UK sanctions
  legislation, the Proceeds of Crime Act 2002 (for anti-money laundering), Data
  Protection Act 2018 (for personal data), the Bribery Act 2010 (for anti-corruption) and
  the Senior Management and Certification Regime (SM&CR);
• regularly reporting on compliance performance (and any breaches of compliance) to the
  board; and
• creating and maintaining a compliance manual, containing all the requirements for
  compliant operations as well as matters such as terms of reference for the board,
  committees and individuals carrying out controlled functions.

Question 99

What are the three sections of customer service?

Answer 99

1. Pre-transactional. – customer service mission statement, staff training, complaints
   handling processes and preparation of warranties.
2. Transactional. – managing customer service demand patterns, timing and monitoring
   levels of customer service delivery.
3. Post-transactional. – claims handling service, handling complaints and cross-selling.

Question 100

In regard to accounting what does the Companies house regualtion include?

Answer 100

The Companies Act 2006 includes regulations on accounting such as the:

• requirement to keep adequate accounting records;
• directors’ duty to prepare accounts for a company;
• directors’ duty to prepare accounts for a group of companies and the consistency of
  financial reporting within a group; and
• requirement to prepare accounts that show a true and fair view.

Question 101

What does the income statment show?

Answer 101

The income statement which shows the results of the company as a consequence of transactions during the accounting period. It sets out the income, expenses, tax and the
profit or loss.

Question 102

What is the balance sheet?

Answer 102

statement of the financial position of the business at a
point in time (‘as at’ a particular date), i.e. the end of the accounting period or year-end
date. It is a ‘snap shot’ of the company’s position at a particular point in time, listing all the
company’s assets and liabilities – what is owned and what is owed. What is owed by the
company includes the shareholders’ equity, which is the total of the assets less the total
of the liabilities.

Question 103

What is a cash flow statement

Answer 103

Cash flow statements are presented as an integral part of a company’s financial
statements to recognise that accounting profit, or loss, is not the only indicator of a
company’s performance. Cash flow statements show the sources and uses of cash and
are a useful indicator of a company’s liquidity.

Question 104

What are the two aspects of accounting?

• what is the differnce?

Answer 104

financial and management accounting.

Financial accounting involves the day-to-day recording of the company’s transactions and
presenting this information in financial statements for external consumption for those
outsiders who have an interest in the company.

By comparison, management accounting can be formulated in different ways to suit many
purposes. As well as using the source day-to-day transactional data captured for financial
accounting information, management accounting will also incorporate a variety of other
different information sources to enable managers to fulfil their responsibilities.

Question 105

define income

Answer 105

Income is simply all of the amounts of money earned by the organisation from any source,
including sales, rentals, interest payments and investments.
Income generated from sales (excluding VAT) is sometimes called revenue or turnover.

Question 106

Define expenditure

Answer 106

Expenditure is all the amounts of money incurred to pay for goods or services.

Question 107

Define Profit

Answer 107

In accounting terms, profit is any excess of income over expenditure incurred in running the
business that earns that income.

Question 108

Define Shareholders’ equity

Answer 108

Shareholders’ equity is the stake shareholders have in the company. It is calculated as the
total value of all the assets in the business less the total value of all the liabilities.

Question 109

Define Capital and regulatory capital

Answer 109

The capital of a trading company is the sum of the equity and long-term debt used to finance
the business.

For regulatory captial the formula is the same, but Long-term debt can only be
classified as regulatory capital if it meets stringent rules set by the PRA. Equity counts as
Tier 1 capital (this is the best sort of capital as it gives the greatest protection to
policyholders).

Question 110

Define an asset

Answer 110

An asset is a resource controlled by the enterprise as a result of past events and from which
future economic benefits are expected to flow to the enterprise.

Question 111

Define liability

Answer 111

A liability is a present obligation arising from past events, the settlement of which is expected
to result in an outflow of economic benefits. In other words, a liability is an amount owed by
an organisation.

Question 112

What is the equation for straight-line deprecitation?

Answer 112

(cost of asset – scrap or residual value)/
the life of the asset

Question 113

What are non-current assests?

What are some examples of non-current assets?

Answer 113

Non current assets, are items of walth that are controlled by the business, which the company intends to keep for more then one year.

1) Goodwill and other
intangible assets.
Goodwill is the difference between the amount paid for acquiring a business and the
value of the net assets of that business when acquired. Other intangible assets
include patents, brands and licences

2) Property
This includes freehold and leasehold property and land used by the business
for trading.

3) Investments
Investments includes property if held for investment rather than used by the
business for trading, equities, government bonds and corporate bonds.

Question 114

What is a current asset?

Give some examples

Answer 114

A current asset are items of wealth the the business controls and intends to use within the next twelve months.

1) Cash and cash
equivalents

2) Stock

3) Debtors
- Debtors are customers who owe the business money. They are created when goods
or services are sold on credit.

Question 115

If there is current, and non current assests - can there be current and non-current liabilites?

Answer 115

Yes

Question 116

What is working capital?

Answer 116

Working capital is the money used to finance day-to-day trading activities. Working capital
is used to pay for wages and raw materials and for overheads such as utility bills. On the
balance sheet the value of working capital is calculated by subtracting current liabilities
from current assets. Working capital is known as net current assets.

Question 117

What is assests employed?

Answer 117

Assets employed are calculated by adding non-current assets to working capital (net
current assets).

Question 118

What is gross profit?

Answer 118

Gross profit is calculated by subtracting cost of sales from turnover

Question 119

For profit for the year to be achieved - what needs to be added or subtracted?

Answer 119

1) Finance income the income earned on any investments held during the year.

2) Finance costs the cost of loans made to the company such as bank loans, mortgages and
corporate bonds.

3) Overheads the other expenses incurred by a company such as the cost of management,
administration staff and office accommodation.

4) Taxation All businesses have to pay corporation tax on their profits.

Question 120

What does the cash flow statement show?

Answer 120

The
cash flow statement records the movements of cash in and of cash out that took place during
the last financial year. It also shows the company’s net cash flow for the year.

Question 121

What does a cash flow statement analyses where cash flow arise from where?

-(where does the money come and go from?)

Answer 121

1) Cash flows from operating activities - Businesses generate cash flows from their trading activities. This section of the cash flow
statement deals with how much cash the business managed to generate or consume as a
direct consequence of its trading activities including tax paid.

2) Cash flows from investment activities - This section shows cash inflows and outflows created by investing activities.

3) Cash flows from financing activities - This section deals with changes to loan and share capital and payment of dividends to shareholders. If the business has managed to raise cash by negotiating new loans or by issuing more shares, a cash inflow is shown.

Question 122

What would mananagement acount give information on?

( for a company producing goods)

Answer 122

• the productivity of the factory and possibly the productivity of individual machines;
• the quality of goods being produced;
• the cost of goods being produced analysed as appropriate for the factory such as labour costs, machinery costs, wastage costs and costs relating to quality assurance;
• the capital absorbed by the business in raw materials, work in progress and
  finished goods.

Question 123

What would mananagement acount give information on?

(for a Service company)

Answer 123

• customer satisfaction;
• the quality of the service provided;
• the cost of the service analysed as appropriate for the business;
• the financial performance of each of the various distribution channels such as direct sales
  force, outsourced call centres and web.

Question 124

What would a managerment account report on?

Answer 124

Management accounts will report on non-financial information, such as productivity ratios, quality of goods and customer satisfaction as well as financial information.

Question 125

What is the principle of costing concerned with?

Answer 125

This is concerned with establishing the necessary accounting information for profit and contributions to overhead costs of the various components of the business.

Question 126

Managerment account - what are the two ways that a mangerment team can evaluate projects?

Answer 126

1. The first shows the effective interest rate (internal rate of return or IRR) each project will produce. By way of a simple example if the day one investment is 100 and the return is 110 in one year’s time the IRR is 10%.
2. The second shows the value of the projects expressed in today’s money (this is called net present value or NPV). This technique recognises that having £100 today is worth more than earning £100 in one year’s time. Cashflows in the future are reduced in value to
   recognise the cost of holding capital to finance the business.

Question 127

What is the role for the IFRS

Answer 127

The IFRS Foundation is a not-for-profit international organisation responsible for developing
a single set of high-quality global accounting standards, known as IFRS Standards.

Question 128

What is the IFS’s mission?

Answer 128

To develop standards that bring transparency, accountability and efficiency to
financial markets around the world

Question 129

Who uses the IFRS

Answer 129

UK companies listed on the London Stock Exchange are required to prepare their
consolidated accounts following the UK-adopted International Financial Reporting
Standards (IFRS).

In the USA the Securities Exchange Commission (SEC) allows overseas firms to use IFRS
(the international version, not the UK version) when doing business or listing securities in the
USA but has said, ‘U.S. constituents have advised us that they do not support a move to, or
an option to use, IFRS for financial reporting by U.S. companies’.

Many of the world’s capital markets now require IFRS, or some form thereof, for financial
statements of public-interest entities. The remaining major capital markets without an IFRS
mandate are (a) the USA, as mentioned above, with no current plans to change; (b) Japan,
where voluntary adoption is permitted but not required.

Question 130

According to the IFRS - when is data enhanced?

Answer 130

If it is:
* comparable;
* verifiable;
* timely; and
* understandable.

Question 131

Under the Companies Act 2006 - how must UK companies prepare their finanical statements?

Answer 131

statements each year which give a ‘true and fair’

Question 132

Can a director depart from the normal accounting standards - when representing yearly reports?

Answer 132

Yes.

If directors conclude that compliance with an accounting standard would be misleading and
conflict with the requirement to give a ‘true and fair’ view the entity is required to depart from
the accounting standard, with detailed disclosure of the nature, reasons, and impact of the
departure. This is only expected to happen in very rare occasions.

Question 133

Under the IFRS 17 - What regular information needs to be updated.

Answer 133

• Insurers need to make extensive disclosures about their insurance risk management
  policy, interest and credit risk information, and terms and conditions of insurance
  contracts with the impact on future cash flows.
• Insurance liabilities must be kept in the insurer’s balance sheet until they are discharged,
  cancelled or expire.
• Insurance liabilities must be included in the balance sheet without offsetting them against related reinsurance assets.
• A test for the adequacy of recognised insurance liabilities.
• An impairment test for reinsurance assets.
• Provisions for possible claims under contracts that are not in existence at the reporting
  date, such as catastrophe, and equalisation provisions, are not permitted.

Question 134

What is the FRC?

Answer 134

Financial Reporting Council

The FRC is currently the UK’s independent regulator responsible for promoting confidence in
corporate reporting and governance and it is to be replaced by the ARGA during 2023/24.

Question 135

What is the FRC’s mission?

Answer 135

The FRC’s mission is to promote transparency and integrity in business to serve the interests
of the public and the UK economy.

Question 136

What is required for the comapny to be classed as a small entities?

Answer 136

A small entity is one that satisfies any two of the following:
* Turnover less than £10.2m.

• Total assets less than £5.1m.
• 50 employees or less

Question 137

What is required for the company to be classed as a mico entity?

Answer 137

A micro entity is one that
satisfies any two of the following:
* Turnover less than £632,000.

• Total assets less than £316,000.
• 10 employees or less.

Question 138

What are some of the reasons for claims reserving?

Answer 138

The uncertainty over setting an appropriate level of claims reserve is influenced by a number
of factors including:

• legislative change in the future having a retrospective impact on existing claims;
• future claims payment patterns differing from historical experience;
• claims, such as stress and disease claims, emerging from risks written many years ago;
• cases of latent exposures such as asbestos being reported (for example, cases of
  mesothelioma can have a latent period of up to 40 years);
• the outcome of litigation on existing claims;
• failure to recover reinsurance;
• unanticipated changes in claims inflation; and
• unexpected changes to the interest rates (Ogden rate) applied by courts on personal
  injury claims.

Question 139

What is the IBNR calculation based on?

Answer 139

The IBNR calculation is based on an extrapolation of the pattern of claims reported in prior
years and up to the balance sheet date.

The prior year patterns are used to estimate the
number of claims expected to be reported after the balance sheet date with incident dates
prior to the balance sheet date.

The total value of IBNR is calculated from multiplying the
number of such claims by the average cost of claims. Note that if claim numbers are stable
the IBNR increases by claims inflation each year.

Question 140

During an incident year, what statistics are collected for each class of business?

Answer 140

• Number of claims reported.
• Number of nil claims (in case the policy for recording nil claims changes which could have
  a distorting effect on total reported claims).
• Total value of paid claims.
• Total value of the outstanding case estimate of claims at the period end (from which the
  case incurred development can be modelled as the case incurred value is the sum of the
  claims paid in the year plus the value of the case estimates outstanding at the end of the
  year, less the value of the case estimates brought forward from the prior year).

Question 141

Define projection of paid claims?

Answer 141

The simplest method is to just extrapolate the paid claims and not use any other information available such as the incurred cost of claims. As payments would have been subject to inflation this method assumes that the typical claims inflation experienced in the past will be experienced in the future.

An inflation
adjusted method is particularly useful when inflation experienced to date is expected
to differ markedly from that expected in the future.

Question 142

What are the main proftiability ratios?

Answer 142

Gross profit percentage ratio
(Gross profit/Sales (revenue ))*100

Net profit percentage ratio
“Net profit/Sales (revenue/turnover))*100

Return on capital employed (ROCE) ratio
(Profit before interest charges and tax/ share capital+reserves+borrowing)*100

Question 143

What does the movement in gorss profit percentage ratio indicate?

Answer 143

• A decrease may indicate greater competition in the market causing lower selling prices and a lower gross profit; or an increase in the cost of purchases.
• An increase in the gross profit percentage may indicate that the company is in a position
  to exploit the market and charge higher prices for its products, or that it is able to source its purchases at a lower cost.
• A change can also be due to a change in the mix of products sold. An increasing volume
  of a product with a high gross margin will increase the overall ratio.

Question 144

What does the Net profit percentage ratio give an indication off?

Answer 144

gives an indication of how well a company is managing its business expenses. If the net profit percentage has decreased over time while the gross profit percentage has remained the same, this might indicate a lack of internal control over expenses.

Question 145

What does the ROCE allow an investor to see?

Answer 145

The return on capital employed (ROCE) ratio enables an investor to see if the insurer is
making money for them and make comparisons between companies. The ratio is basically
concerned with the relationship of profit to the total capital employed and is seen as giving
an indication of how efficiently and effectively management have deployed the resources
available to it, irrespective of how those resources have been financed.

Question 146

Why is the ROCE ratio an important measure

Answer 146

• A low return could easily be wiped out in a recession.
• When acquiring other businesses or moving into new markets, there should be a high ROCE to make it worthwhile for the capital providers.
• A persistently low ROCE in a business division may signal that it is time to dispose of it.

Question 147

What are some usful efficiency ratios?

Also why are they impotant?

Answer 147

The receivables/debtors collection period (in days or months) provides an indication of how
successful (or efficient) the debt collection has been:
((Trade receivables/debtors)/
Sales) × 365 days

The payables/creditors payments period links the value of payables/creditors with the amount of goods and services that a company is purchasing on credit.

(Payables/creditors)/
Purchase) × 365 days

Payable/creditors can provide a source of free finance to the company and so it is in the company’s interest to try and defer payments as long as possible.

((Inventory/stock)/Cost of Sales)*365

A change in the inventory/stock turnover period can be a useful indicator of how well a
company is doing. A lengthening in the inventory/stock turnover period may indicate a
slowing down of trading or an unnecessary build up of stock/inventory.

Question 148

What is the formula for the current ratio - and does it in indicate?

Answer 148

current assets/
current liabilities

A current ratio of more than 2 is seen as prudent in order to maintain creditworthiness, but in
recent years a figure of 1.5 has become quite normal. However, it will depend on the nature
of the business and how much stock is readily saleable. An example of a business that can
trade with a low current ratio is a supermarket. They buy goods on credit and sell mainly for
cash and so can usually survive on a current ratio of less than 1 (i.e. current assets less than
current liabilities).

Question 149

What is the formula for the quick ratio -What does it indicate.

Answer 149

current assets excluding stock/
current liabilities

The quick ratio (which is more liquid or cash driven) will often be below 1, which means if a
company had paid up all its creditors and collected from all its debtors at once, the company
would require an overdraft facility. The question is then – are the bankers happy to offer an
overdraft? If not, then the company is possibly starting to get into trouble.

Question 150

What doe Activity ratios show?

Answer 150

They compare some aspect of the company’s activities (usually sales or purchases) with a relevant balance sheet item. When comparing sales over a longer period of time, it may be advisable also to take inflation into account.

Question 151

What is the frequently used activy ratio with regard to stock?

Answer 151

cost of sales/
average stock

This ratio is used to investigate a company’s stockholding policy. If a company has annual
cost of sales of 120 and holds an average stock of 20, the stock is turned over six times per
year, or once every two months. Changes in this ratio affect a business’s liquidity. If the stock
is turned over more slowly, less cash is generated and relatively more cash is tied up in
stock.

Question 152

What is the frequently used activy ratio with regard to Debtors and creditors ?

Answer 152

1) The debt tunover - Sales/Debtors
When expressed in this form, this ratio indicates how often the amount of debtors is turned over each year. Sales of 180 per year and average debtors of 30 would produce a debtor
turnover of six times per year. This is the same as saying that debtors are turned over once every two months, i.e. that debtors stay on the company’s books for two months and they
take, on average, two months to pay.

2) The credit turnover - Purcahses/Creditors
This ratio is based on the same principle as the stock and debtor turnover ratios, but since
creditors are created when the business buys something, it should be based on purchases
and not on sales. If our purchases amount to 120 per year and our average amount of
creditors is ten, our creditor turnover is twelve times per year or once a month. This means that we receive one month’s credit from our suppliers.

Question 153

What is the gearing ratio?

What is a good/typica and bad ratio?

Answer 153

(Long-term borrowin/shareholders equity)*100

It is a measure of financial leverage and shows the extent to which a
company finances its activities from borrowings as opposed to shareholders’ equity. The
higher this ratio, the more the business in question relies on debt finance.

Gearing ratios of between 25% and 50% are typical. Companies that can generate a
sustainable high level of profits can have higher levels of debt/equity. Companies with high
levels of fixed assets, such as plant and machinery, are likely to have high levels of gearing
and private equity companies typically use much higher gearing ratios for the companies
they acquire and have been successful in generating high returns for their investors.

Question 154

What is the formula for a good solvency coverage ratio?

Answer 154

total eligible capital/
solvency capital requirement

Question 155

What is the formula of for the Solvency ratio?

Answer 155

net assets/
earned premium net of reinsurance

It will be appreciated that, in general terms, the higher the figure the stronger the company
although the weakness of the calculation is that in a hard market where premium rates
increase the solvency will show an apparent deterioration whereas the economic position is
an improvement. Another issue to deal with is that a company with a high level of capital to
support the premiums written is usually seen as being ‘overcapitalised’ and will have a lower
return on equity than a company that has a lower level of capital.

Question 156

What is the general ratio, for the liquidity ratio?

Answer 156

total liabilities/
cash+investments

Question 157

What is the forumala for return on investment?

Answer 157

(profit after tax/
shareholders’ equity (capital)) × 100

The ratio is basically concerned with the relationship of profit to the shareholders’ capital and is seen as giving an indication of the efficiency with which that capital is employed.

Question 158

Why is gearing different for an insurance company?

What does a higher geared ratio show?

Answer 158

Debt capital for an insurance company is subject to special requirements as, to be effective,
the debt capital has to comply with the rules laid down by the regulator.

Due to these restrictions it is more common for an insurer that chooses to use debt capital to have a gearing ratio in the range 10 to 25% although a highly capitalised insurer may choose to have a higher percentage of gearing.

(long-term borrowing/Shareeholder equity)*100

A highly geared ratio may suggest that a company cannot finance its own activities.
Generally, it is not considered to be a good thing for a company to have to borrow a high
percentage of its sources of finance for long-term investment, as it will have to meet a
substantial annual interest bill, which will be to the detriment of profits available for
shareholders. However, a high gearing ratio is acceptable in some circumstances, for
example this may be preferred to:
* losing control by having too many issued shares; and
* with fewer shares there are fewer shareholders to participate in the profit, so a small
increase in pre-interest profit could lead to a large increase in dividends.

Question 159

What does the combined ratio show?

Answer 159

The combined ratio measures the underwriting performance by combining the claims ratio
with the expense ratio and the commission ratio.

A combined ratio does not take account of investment income and tracks the underwriting performance rather than profitability – so it does not provide the whole picture. A combined
ratio below 100% generally indicates a good underwriting performance and above 110%
generally indicates poor underwriting or catastrophe losses. In the past, insurance
companies boosted poor underwriting results with investment income. Recently, the
fundamentals within the investment markets have forced all insurance companies to rethink
their underwriting strategies and focus on driving the combined ratio below 100%.

Question 160

What are the three ratios that drive the combined ratio?

How do they form the ratio?

Answer 160

1) the claims ratio:
(claims incurred net of reinsurance/
earned premium net of reinsurance) × 100

2) the expense ratio:
(administrative expenses
earned premium net of reinsurance) × 100

3) the commission ratio:
(acquisition costs
earned premium net of reinsurance )× 100

the combined (or operating) ratio:
= (claims+expenses + acquisition costs/
earned premium net of reinsurance) × 100

Question 161

What is the importance, and formula, for the Outstanfing claims ratio?

Answer 161

Outstanding claims are the major liability of a general insurance company. Changes in bases
of valuation can affect both net assets and profit, yet valuation is always a problem and there
is a particular concern at the risks inherent in undervaluation.

The lower the ratio the more secure the position – but, paradoxically, a company which is
under-reserved will show a better result and this will create problems for the future, maybe
even leading to failure.

outstanding claims net of reinsurance/
net assets

Question 162

The question has to be asked – why does an insurer pay a fee to an outside company to
state an opinion on its financial strength?

Answer 162

The simple answer is that all customers purchasing an insurance contract are simply buying
a promise that the insurer will honour all valid claims as and when they become due at a
future point in time. Occasionally, insurance organisations go into liquidation, so many
commercial customers and brokers rely on financial strength ratings when making decisions
regarding placing business.

Question 163

Why do insurance companies prefer to have a financial strength rating

Answer 163

• it demonstrates to policyholders that a third party has measured the likelihood of them

meeting their financial commitments;
* it allows for financial strength comparisons between different insurers;

• it should allow an extremely strong (AAA) insurer to charge a higher premium or be
  offered a wider range of business than a good (BBB) insurer as the customer is buying
  into a stronger rated (and therefore potentially more secure) company; and
• brokers and customers can decide on their risk appetite by choosing the financial
  strength rating that they prefer for their insurance carriers. For example, they may decide
  that their insurance policies must be placed with companies that have an S&P financial
  strength rating of higher than A-.

Question 164

What is a typically analytical framework that a rating agency would use?

Answer 164

• Economic and industry risk. The environmental framework in which insurance companies operate. Typical points would be to look at the threat of new entrants, volatility of the sector, country risk and the potential ‘tail’ to liabilities or risk of catastrophic losses.
• Competitive position. The profile of the business mix in terms of the competitive strengths and weaknesses. This is particularly relevant in terms of the insurance company’s strategy.
• Management and corporate strategy. This looks at the quality and credibility of an insurer’s senior management team and the strategy it has set, and is one of the most important elements in determining how successful the company will be going forward.
• Enterprise risk management (ERM). ERM is the method by which a company manages risk (both risks that have an upside as well as a downside). ERM provides a framework to assess the frequency and severity of risks, risk mitigation, monitoring and reporting. They
  will assess how an insurer identifies, measures, and manages risk. Some insurers’ ERM includes the use of an internal model, and the rating agencies will incorporate the results of ERM modelling in their analysis of capital adequacy. Most large insurers are expected
  to have an effective ERM to earn the stronger financial ratings.
• Operating performance. This involves looking at the performance ratios – loss ratio,
  expense ratio, combined ratio, return on equity etc.
• Investments. Of key importance here is how the insurer’s investment strategy fits with its
  liability profile, and to what extent investment results contribute to total company
  earnings.
• Capital adequacy. This looks at the quality and level of capital required to run the business based on the risk appetite adopted.
• Liquidity. The ability to manage cash flows efficiently and easily borrow money if
  required.
• Financial flexibility. This looks at the insurer’s potential need for additional capital or
  liquidity in the future.

Question 165

What do some critics of the credit rating process say?

Answer 165

Critics of the credit rating process have commented that credit rating agencies do not
downgrade companies promptly enough

Question 166

The board of an insurance company has the responsibility to determine the company’s risk
appetite. The risk appetite statement would typically include?

Answer 166

• a statement of the risks that it is acceptable for the company to bear;
• what risks are not acceptable;
• the probability of failure that is deemed to be acceptable;
• the maximum loss that is acceptable from any one incident;
• the target level of financial security; and
• the quality and diversity of investments.

Question 167

What is the PRA reuirment for the probaility for failure?

Answer 167

The PRA requires that the probability of failure should not be higher than one chance in two
hundred over a twelve-month timescale.

Question 168

What would an risk appetite statement set out?

Answer 168

• the risk acceptance criteria;
• an investment policy;
• a reinsurance policy; and
• other financial and risk policy statements.

Question 169

What are the three Pillars of the Solvency II

Answer 169

• Pillar 1 – Financial requirements. This applies to all firms and considers key
  quantitative requirements, including own funds, technical provisions and calculation of the
  Solvency II capital requirements the solvency capital requirement (SCR) and minimum
  capital requirement (MCR) through either an approved full or partial internal model or the
  standard formula approach.
• Pillar 2 – Governance and supervision. This includes an effective risk management
  system and prospective risk identification through the own risk and solvency assessment
  (ORSA).
• Pillar 3 – Reporting and disclosure. Insurers are required to publish details of the risks
  facing them, capital adequacy and risk management. Transparency and open information
  are intended to assist market forces in imposing greater discipline on the industry.

Question 170

What is objectives of Solvency II

Answer 170

to enhance policyholder protection and create a safer, more
resilient insurance sector.

Question 171

With Solvency 2, what does SCR mean?

Answer 171

the solvency capital requirement - The SCR is the quantity of capital that is intended to provide protection against unexpected losses, over the following year, up to the statistical level of a ‘1 in 200-year event’

Question 172

With Solvency 2, what does MCR mean?

Answer 172

minimum capital requirement (MCR) - The MCR denotes a level below which policyholders would be exposed to an unacceptable level of risk
and is intended to correspond to an 85% probability of adequacy over the following year.

Question 173

What occurs when a firm breahes the SCR?

Answer 173

The firm must then consider and
action a plan to restore its capital position
and/or reduce its risk profile. Distributions
to investors are either cancelled or
deferred. The SCR acts as an intervention
point for supervisors to take action.

Question 174

What happens when a firm breaches te MCR?

Answer 174

regulatory action is
taken and the firm must submit a plan for
approval, explaining how it will restore
capital above the MCR within three
months. If the firm is unable to do so,
its authorisation may be withdrawn

Question 175

What are the two basic options when there is a case of inadeqate regulatory capital?

Answer 175

• Raise more regulatory capital. This could be by means of:
  – issuing new shares in a limited company;
  – issuing long-term debt that meets the PRA requirements for Tier 1 or Tier 2 regulatory
  capital; or
• Reduce the regulatory capital requirement.
  – the volume of business written, particularly in lines which generate a high capital
  requirement;
  – increasing reinsurance; and/or
  – switching out of higher risk assets such as equities, into lower risk ones such as
  government bonds.

Question 176

Finish last chapter yourself.

Answer 176

Send 10 mins going through the chapter.

Question 177

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

Answer 177

a stakeholder perspective.

Question 178

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

Answer 178

Appoint a company secretary.

Question 179

What is the basic features of a managerment information system?

Answer 179

1) Information flows horizontally and vertically. It is with the vertical flow (between managers/ team leaders and team members) that management information systems are most
concerned.

2) Reports generated by an information system will range between:
- information for low-level management about the small area of the organisation under thier control.
- reports of a broader nature for top-level management concerned with overall control.

3) The centre core of an MIS is likely to be tactical information for management control, although the MIS will have many sub-systems and sub-sub-systems providing information ranging from operational through tactical to strategic.

4) The control cycle (i.e. the comparison of actual results against a plan and the production of exceptional reports to show where control action may be needed) cannot be effective
unless the plan is carefully prepared

5) A precise and carefully drawn-up specification of the areas of management responsibility is essential. This specification is necessary to ensure that information will flow to the
managers who need it.

6) The information produced must be able to measure actual results against the plan in such a way that control decisions can be taken at all levels of management. Data must also be available to enable senior management to plan for the future and computers are of
special value in preparing forecasts from large quantities of data.

Question 180

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?

Answer 180

It is optional in all circumstances.

Question 181

An insurer has committed a breach, under the General Data Protection Regulation (GDPR). This
breach is likely to result in a high risk to the rights and freedoms of natural persons. Within what maximum period must the breach be reported to the Information Commissioner’s office?

Answer 181

72 hours.

Question 182

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

Answer 182

A cash flow statement.

Question 183

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

Answer 183

The insurance company.

Question 184

What do large insurers do regarding rating agencies?

Answer 184

Large insurance companies (or reinsurance companies) frequently pay rating agencies to provide an opinion of their financial strength which is a measure of their ability to pay claims under their insurance policies and contracts.

Question 185

What is the overriding regulatory requirment?

Answer 185

A firm must at all times maintain overall
financial resources, including capital resources and liquidity resources, which are adequate both as to amount and quality, to ensure that there is no significant risk that its liabilities
cannot be met as they fall due.’

Question 186

In Solvency II what principle does the company’s balance sheet need to be based on

Answer 186

Balance sheet to be based on the principle of
market-consistent valuations.

Essentially, this means that the value of assets and liabilities
reflect the current value at which they could be traded in financial markets, rather than their
original accounting value.

Question 187

What is Solvency II interpretation of the market of insurance liabilites

Answer 187

it requires insurers to forecast expected future liability cash flows and then discount them using risk-free interest rates of an appropriate maturity, to arrive at a ‘best estimate’.

Question 188

Define tier 1 captial (as classified by solvency II).

Answer 188

Tier 1 capital, such as common equity
and retained earnings, is the highest quality of capital and must be able to absorb losses on
a day-to-day, ‘going-concern’ basis.

Question 189

Why does Solvency II classifies different forms of captial into tiers?

Answer 189

based on its ability to absorb losses.

Question 190

Define tier 2 captial (as classified by solvency II).

Answer 190

Tier 2 capital, such as subordinated debt, is of a lower quality and only needs to absorb
losses on insolvency.

Question 191

Define tier 3 captial (as classified by solvency II).

Answer 191

Finally, Tier 3 capital is the lowest quality of capital permitted and has only limited loss-absorbing capacity. It is unlikely that firms will have significant quantities of
Tier 3 capital under Solvency II.

Question 192

What is the USe test (in regard to calculating SCR)?

Answer 192

The use test will be used to verify that internal models are employed not just to satisfy the regulatory requirement of calculating the SCR, but as a tool that is part of a firm’s wider, risk
management and decision-making processes

Question 193

What do regular need to check when it comes to internal modleing?

Answer 193

Regular and robust monitoring of internal models is needed to verify that, following approval of an internal model, it continues to reflect the true risk profile of a firm and is used and
understood appropriately within the business. When considering the ongoing appropriateness of internal models, the PRA will consider the lessons learnt from the use of
models in the banking industry.

Question 194

What did the PRA add regarding the Goverance and supervision?

Answer 194

Individuals that run insurance companies should have clearly defined responsibilities and are expected to behave with honesty, integrity and competence in order to provide sound and
prudent management. For this purpose, the PRA has introduced the Senior Managers and Certification Regime (SM&CR) which is intended to ensure the accountability of senior
management in the insurance sector.

Question 195

Pilliar 2 - Goverance and supervision, what is ORSA?

Answer 195

Solvency II requires insurers to take a comprehensive approach to considering their risks through the own risk and solvency assessment (ORSA).

Furthermore, firms face risks that span the entirety of their business plan, such as the long-term effects of climate change, which are not necessarily significant over the one-year time horizon used in the calibration of the SCR. By requiring a firm’s management to consider risks such as these, the ORSA should help firms to understand and manage all the risks they are exposed to.

Question 196

What is the solvency and financial condition report (SFCR)?

Answer 196

Firms are required to publish a SFCR annually, and to disclose additional information privately to regulators in the Regulator Supervisory Report.

In the SFCR, firms need to clearly explain aspects of their approach to Solvency II, such as the use of an internal model and any non-compliance with regulatory solvency requirements.
Solvency II sets out the disclosure requirements for the SFCR such that the quality and standardisation of firm disclosures should improve. The improved reporting requirements
also provide supervisors with better and more consistent information.

Question 197

What is Stress testing and senario testing?

Answer 197

firms consider the potential impact of certain
adverse circumstances on their business

Question 198

Stress and scenario testing - what does the regulator request insurers do?

Answer 198

Insurers are required to develop, implement and action a robust and effective stress testing programme that assesses their ability to meet capital and liquidity requirements in stressed
conditions, as a key component of effective risk management. All firms should undertake relevant analysis, commensurate with the nature, scale and complexity of their business.

Question 199

What are Reverse Stress tests?

Answer 199

Reverse stress tests are stress tests that require a firm to assess scenarios and circumstances that would render its business model unviable, thereby identifying potential
business vulnerabilities. This differs from general stress and scenario testing, which tests for outcomes arising from changes in circumstances. A firm’s business model is described as
being unviable at the point when crystallising risks cause the market to lose confidence
in the firm

Question 200

According to Solvency II what must the acturies function do

Answer 200

The firm’s actuarial function must contribute to the effective implementation of the risk management system in particular with respect to the design, calibration and build of the
internal model, with a feedback loop being used to improve the model.
The actuarial function should use the outputs of the internal model, for example in providing an improved understanding of its reserve volatility and may well use the internal model to assess the
firm’s technical provisions

Question 201

What is the main role of the audit committee

Answer 201

acting independently from the executive, to ensure that the interests
of shareholders are properly protected in relation to financial reporting and internal
control

Question 202

How must the board treat the audit commitee?

Answer 202

the management is under an obligation to ensure the audit committee is kept properly informed and should take the initiative in supplying information rather than waiting to be asked. The board should make it clear to all directors and staff that they
must cooperate with the audit committee and provide it with any information it requires. In addition, executive board members will have regard to their duty to provide all directors,
including those on the audit committee, with all the information they need to discharge their responsibilities as directors of the company.

Question 203

What is the responsibilities of the audit committee

Answer 203

• monitoring the integrity of the company’s financial statements;
• reviewing the company’s internal financial controls;
• monitoring and reviewing the effectiveness of the company’s internal audit function;
• making recommendations to the board, for it to put to the shareholders for their approval in the general meeting, in relation to the appointment of the external auditor and to approve the remuneration and terms of engagement of the external auditor;
• reviewing and monitoring the external auditor’s independence and objectivity and the effectiveness of the audit process;
• developing and implementing policy on the engagement of the external auditor to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the external audit firm; and
• to report to the board, identifying any matters where it considers that action or
  improvement is needed, and making recommendations as to the steps to be taken.

Question 204

A shareholders’ liability under a proprietary company is

Answer 204

the nominal value of their shareholding.

Question 205

What is white labeling?

Answer 205

This distribution channel is referred to as white labelling, where the organisation offers insurance products branded with their own name but underwritten by an insurance company or with a Lloyd’s syndicate.

Question 206

An insurance company’s tactical plan may refer to

Answer 206

development of new insurance products over a 2-year period.

Question 207

What are some common Key risk indicators?

Answer 207

• IT downtime.
• Examples of fraud (internal and external).
• Complaints.
• Property loss or damage.
• Employee injury or illness.

Question 208

What is a Articles of Association

Answer 208

written rules about running the company agreed by the shareholders or guarantors, directors and the company secretary.

Question 209

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?

Answer 209

Balance sheet

Question 210

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

Answer 210

earned an amount of income which is balanced by an increase in cash.

Question 211

What is the double-entry principle?

Answer 211

This principle shows the two-fold effect on the accounting equation by reflecting that the business both receives and gives value in each transaction.

Question 212

What does an invoice document show?

Answer 212

• the amount of the debt incurred;
• the individual or organisation who owes the money;
• the organisation to whom the debt is owed;
• the date when the debt was incurred;
• the date when payment is due;
• the way the debt amount was calculated and what service or goods were supplied;
• ancillary financial information such as any VAT associated with the charge and the organisation’s VAT registration number.

Question 213

A balance sheet records a company’s

Answer 213

net financial position

Question 214

What is the Bornhuetter-Ferguson method?

Answer 214

This is a straightforward combination of the loss-ratio method with either a paid loss or incurred loss development.

Question 215

What is the Loss ratio method?

Answer 215

This method is rarely used on its own but can be used for the most recent incident years where the value of paid and/or incurred claims is low in relation to the total value of claims expected.

Question 216

Projection of incurred claims

Answer 216

As this uses more information, the expectation is that this method will produce a more accurate estimate of total claims than a projection of paid claims.
However, issues will arise with this method when there has been a significant change to the claims handling procedures

Question 217

Projection of paid claims

Answer 217

The simplest method is to just extrapolate the paid claims and not use any other information available such as the incurred cost of claims.
As payments would have
been subject to inflation this method assumes that the typical claims inflation experienced in the past will be experienced in the future.

Question 218

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

Answer 218

a measure of its ability to pay claims

Question 219

Under which Act would it be a civil offence if Mark were to sell his shares following information
obtained in May?

Answer 219

Financial Services and Markets Act 2000

Question 220

What rules must be followed with confidental paper records?

Answer 220

Confidential information which is in paper form, such as insurance policy records, including claims information, should be marked ‘private and confidential’ and stored in a secure, preferably lockable, cabinet or desk.
Access to the safe storage area should be restricted to individuals who can be trusted to treat the information properly by not disclosing it to any
unauthorised parties.

Question 221

What rules must be followed with Condifental electronic records?

Answer 221

Limiting access to computer files can be achieved through password systems and the encryption (i.e. coding) of information. Encryption is used in particular when confidential information is transmitted through the internet. The information is encoded during
transmission and decoded when it arrives at its intended destination.

This protects the information from being understood by any unauthorised person who intercepts it.

As an additional measure for encouraging personal information to be kept confidential, data protection law prohibits the unauthorised disclosure of records stored in any way (including
on a computer database) to third parties.

Question 222

under the financial service and market act 2000, what is now an criminal offence?

Answer 222

• Insider dealing – when an insider deals, or tries to deal, on the basis of inside information.
• Improper disclosure – where an insider improperly discloses inside information to another
  person.

Question 223

What does UK Market Abuse Regulation (UK MAR) set out?

Answer 223

it’s sets out what constitutes insider dealing and
the unlawful disclosure of inside information

Question 224

What does UK Mar stop people from doing?

Answer 224

UK MAR prohibits persons in possession of inside information from using that information to deal or attempt to deal in financial instruments or to recommend or induce another person to transact on the basis of inside information.

Question 225

What happens if there is a breach in the UK MAR?

Answer 225

For breaches of UK MAR the FCA can impose unlimited fines, order injunctions, or prohibit regulated firms or approved persons. Criminal sanctions for insider dealing and market
manipulation can incur custodial sentences of up to 10 years and unlimited fines.

Question 226

When a company is considering a transaction what is recommended guidance?

Answer 226

• Limit the number of people who need to know about a deal to the practical minimum and a requirement to justify adding people to the list of insiders/senior level sign-off.
• Not passing information to individuals unless they are first clearly made aware of their responsibilities for handling sensitive information.
• If members of staff are identified as needing to know some, but not all, of the deal information then, as far as practical, limit their knowledge to only those parts that are necessary, rather than allowing them access to all information that is available.
• Where appropriate, communicate to all other insiders when someone is removed from an
  insiders’ list.

Question 227

What are the main elements of the Data protection Act 2018?

Answer 227

• Ensuring that sensitive health, social care and education data can continue to be processed, to ensure confidentiality in health and safeguarding situations.
• Restricting the rights to access and delete data where there are legitimate grounds for doing so (e.g. for national security purposes).
• Setting the age from which parental consent is not needed to process data online.
• Providing the ICO with enhanced powers to regulate and enforce data protection laws.

Question 228

What is a strategic risk?

Answer 228

The senior management of the firm will consider the risks associated with matters such as takeover bids, starting new lines of business, opening branches in new locations, including overseas, and the distribution policy (e.g. through brokers, direct, comparison websites etc.

Question 229

what is a insurance and reversing risk?

Answer 229

Insurance risks relate largely to the potential for the loss ratio to be higher than that which was assumed in the business plan.

The risk to insurers is that the amount reserved transpires to be insufficient to meet the final cost of the claims. Where this occurs across a large portfolio of business it can threaten the solvency of the company

Question 230

What is investment and market risk?

Answer 230

The scope of this risk category includes losses due to the reduction in value of investments or returns that are below the planned level

Question 231

What is credit risk?

Answer 231

Credit risks cover those that relate to premium payments by clients and also for reinsurance recoveries

Question 232

What is a an opertational risk

Answer 232

The scope of operational risk is very wide and in effect sweeps up all risks that are not included in the other categories. The risks include property damage to the insurers’ offices and equipment, fraud by employees, breach of regulatory rules, injury or illness to staff or
visitors, IT interruptions or security failures etc.

Question 233

What is a group risk?

Answer 233

Risks within this category emerge where a firm is part of a wider group. For example, an insurer may be the UK subsidiary of a large US group. The UK entity may rely on the parent for solvency capital, technical support and centralised services such as actuarial.

If the strategy at the centre should change (such as the redistribution of capital) then the UK firm may not be able to fulfil its business aims.

Question 234

How can an internal audit help the implementation of good corporate goverance?

Answer 234

• Maintaining a sound system of internal control by reviewing how a company identifies and manages risk.
• Reviewing board reports to ensure that they present a balanced and understandable viewpoint.
• Ensuring the directors are up to date with new accounting and auditing issues, e.g. international accounting standards.
• Communicating with the external auditors and ensuring a unified approach to work.
• Ensuring that the board receives the correct communications and information required from the external auditors

Question 235

What is a risk register?

Answer 235

This is a centralised data source on all risks that the company is known to face and it is the job of the risk management department to keep it current and report significant findings

Question 236

in regards to risk analysis, what is inherent analysis?

Answer 236

The inherent analysis describes the risk without any special controls applied, except perhaps the basic ‘common sense’ controls.

For example, when considering health and safety risks
there is an inherent risk of injury but it is reasonable to expect people to take care of
themselves.

Question 237

What is a common using of using RAG rating?

Answer 237

Risk Ranking

Question 238

What will planning process cover?

Answer 238

• Classes of business to be written.
• Maximum values to be insured for any one policyholder and any one location.
• Gross premiums (before brokerage if applicable) for each class of business.
• A profile of the gross premiums by currency.
• Planned loss ratios for each class.
• A profile of the geographical spread of business.
• Levels (percentage of gross premium) to be paid in brokerage.
• Main sources of business, split by direct and estimated income through each broker.
• An expense profile, detailing staff costs, building and IT costs, advertising budget,
  regulatory fees, outsourcing costs and general expenses.
• Investment strategy, including planned investment income.
• Reinsurance strategy, including a profile of the reinsurers to be used, maximum limits tobe reinsured per reinsurer, and minimum credit agency rating for each reinsurer.
• A summary of key changes to be included in the plan for the year ahead.