Misc. Flashcards
A shareholders’ liability under a proprietary company is:
Limited to the nominal value of their shares (limited liability)
What are composite companies
Sell both life and pensions and general insurance
What is a proprietary company?
A company owned by its shareholders - most insurers
What is a mutual company?
Policyholder owned - any surplus is reinvested in the company to reduce premiums. Think NFU.
What is a captive company?
1 policy holder only. This is self insurance/ the policy holder is the company owner.
What is the most common company among the large multinational companies and where the
parent company forms a subsidiary company to underwrite certain of its own or its group’s
insurable risks
A captive company
What is a multi national company
They operate in a lot of different companies but still have a home base. All companies in different countries will have their own strategy
What is a global company
See’s the whole world as one market - wants to be a centralised business- the whole world is one market
The chief actuary of an insurance company is usually responsible for
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. Plus modeling
Strategic plans cover what period
three and ten years
Tactical plans cover what period
one to three years
Operational plans cover what period
day to day up to 12 months
Which UK companies are required to report whether they are compliant with the UK Corporate
Governance Code?
As it is a a part of the Stock Exchange Listing Rules- anyone who is listed on the london stock exchange
What two things do you need to complete to become a limited company and be registered on companies house?
1- Memodrandum of association
2- Article of association
What is the primary function of financial accounting?
To provide financial information to anyone who has an interest in the company i.e stakeholders
What is management accounting?
Is the concept that information should available to managers to help track financial performance throughout the year and help set corrective action by using critical success factors
What is the difference between financial accounting and management accounting
Financial is set framework for stakeholders and is a regulatory requirement. Management can change to suit purposes and is not a regulatory requirement
Management accounting systems is not just money
Financial statements is based on historical information/ management largely focused on the future
Management statements are not required to be published but if you are a ltd company you have to publish financial statement under companies act
Fianncial statements for larger companies have to be audited to check if true and fair. Management statements are not audited.
What is a solvency margin
the amount of money or assets that a company has after debts are taken away
What do quoted limited companies have to do under the Companies Act 2006 in respect of accounting?
Provide an annual accounts return which must be audited by an independent auditor. Audited accounts are a true reflection of a company’s state to the outside world.
The annual accounts will include financial statements showing:
Income statement (Profit and Loss Account). Same thing
The balance sheet.
Cash flow statements
Narrative reports from the Chief Executive and Directors.
The Company’s plan for the future.
Other legal requirements such as the Director’s remuneration.
What financial document is best to show solvency margins
Balance sheet
What is the best financial document to show if you have made or lost money
Profit of loss
What is a balance sheet
Shows the net financial position as a snapshot by looking at assets, liabilities and equity
What are discounted claims?
claims where the amount set aside is reduced by the
investment income expected to be earned in the future on the investments supporting
the claims.
What are the main differences between income statement (P&L) and cashflow statements
an Income Statement will differ from Cash flow as follows:
1. Money invoiced but not yet received.
2. Money in that was invoiced in a previous year.
3. Depreciation of assets.
Expenses incurred in the previous year but paid this year.
Expenses incurred this year but not yet paid.
What are the three parts to a cash flow:
1: Cash flows from operating (trading) activities
2: Cash flows from investment activities
Investments where you use all of your investments from insurers. Others propls shares/dividends (subsids you have brought Money out purchasing bonds/companies
3/ Cash flows from financing activities (which includes dealings with your own shareholders)
-Bank borrowing or shareholder funds. Money in is:
Share holder (own) selling shares to them
-banks giving you loans (money in – money out would be dividends pay own shareholders, pay the bank loan back)
International and Financial Reporting Standards (IFRS). Who sets the sstandards for these?
International Accountancy Standards Board (IASB) who are given guidance by the IFRS Interpretations Committee.
Who are the syndicates at lloyds of london
Insurers
Who are the managing agents at lloyds of london
Appointed by underwriting members to carry out underwriting on their behalf
Who are franchisers at lloyds of london
Lloyds itself.
Who are franchisees at lloyds of london
Managing agents and members
Who oversees the underwriting book of business by syndicates at llouds of london
Managing agents
What does it mean when a company works with a shareholder focus
They take the view that society is quite capable of looking after itself and that the key
responsibility of a business is to look after its shareholders
What does it mean when a company works with a stakeholder focus
they take the view that it is in their long-term interests, including those of its shareholders, to play a role in society beyond what is required by the law. Sponsorship and community projects are a good example of this
Whenever you see a question which states which is the following is most relevant for finanical information fo you chose shareholder or stakeholder
Whenever you see a question where it could be everybody it’ll always be stakeholder
What is a horizontal M&A
Two companies in the same market. Two insurers etc. Doesn’t matter if niche as long as same
What is a vertical M&A
Controlling additional stages of a supply chain. Think of a broker buying an insurer
n accordance with the Companies
Act 2006, what is the position regarding the inclusion of a chairman’s statement in this report?
It is optional.
What is the internal rate of return
estimate the profitability of potential investments
Factors to take into account when considering claims reserves
Inflation and claims inflation rates
Change in legislation
Change in underwriting practice
New latent exposures
Recent outcomes of claims
Claims payment patterns differing from historical experience
Investment income rates as some insurers account using DISCOUNTED CLAIMS = claims reserves reduced by the expected income likely to be made on the reserve amount during the time it is predicted the claim will run.
What is ‘UK Generally accepted accounting principles’?
NEW UKGAAP
What replaced old UK GAAP?
FRS102 (New GAAP requires the new FRS102
Who sets the UK GAAP standards?
Financial reporting council (FRC)
What has New GAAP done?
It has significantly reduced the rules.
For example:
Financial reporting standards FRS102 used by all firms except micro entities have had 3000 pages of old GAAP replaced with 350 for new GAAP
Solvency II pillars
What are the three pillars
One- Financial requirements- USED TEST
Two- Risk - ORSA
Three- reporting and disclosure- SOLVENCY AND FINANCIAL CONDITION REPORT
What is the principal of Takaful insurance
That any profit should be donated/ shared between participants
What is the cause of low penetration rates in emerging foreign countries
Large populations with low incomes and a limited awareness of the need for insurance
Who is responsible for the first line of defence
Front line managers
What is the first line of defence
Ensuring risk are identified and controlled
Who is responsible for the second line of defence
Risk management
Who is repsonsible for third line of defence
Internal audit team
How can you allocate costs between diferent profit centres
Activity based
A cash flow statement analysis the clash flow into what three categories
Operating activities
Investing activities
Financing activities
What can be recorded in a cash flow statement
records the movement of cash in and out in that took place in the last financial year
What are cash flow operating activities
How much the company generated from their trading activities including tax paid
What are cash flow investing activities
Investments where you use all of your investments from insurers.
Others propls shares/dividends (subsids you have brought
Money out purchasing bonds/companies
What are cash flow financing activities
Bank borrowing or shareholder funds. Money in is:
Share holder (own) selling shares to them
-banks giving you loans (money in – money out would be dividends pay own shareholders, pay the bank loan back
What are the main objectivies of solvency II
Enhance policyholder protection and create a safer insurane market
Solvency II requires all insurers to maintain what
An actural function
What does the Solvency II use test do
Verify that internal models are employed to satisfy regulatory requirement
Examine the extent to which an internal model is understood by a firm’s management and boar
What is included under claims incurred net of reinsurance
The claims paid in the year plus the value of claims outstanding at the end of the year, less the value of claims outstanding brought forward from the prior year
In the case of inadequate regulatory capital, what are the two basic options
Raise more regulatory capital
Reduce the regulatory capital requirement
How do you Raise more regulatory capital
Issuing new shares in a limited company
issuing long term debt that meets the PRA requirements
How do you Reduce the regulatory capital requirement
- reduce the volume of business written
-increasing reinsurance
-switching out higher risk assets such as equities into lower ones such as government bonds
What is the regulatory capital
Sum of the long term debt. equity
If a debt classifies as regulatory capital what does this mean
Improves the solvency margin of the company as the debt does not count as a liability
Shareholders get higher earnings per share as the cost of regulatory capital debt is normally lower than the cost of equity
Who are the sydicates at Lloyds
the insurers
Who manages the managing agents at Lloyds
The syndicates (the insurers)
Do non quoted companies have an executive director and non executive director
No. Only quoted companies need to have non exec
If you want to be quoted what do you need in the board
need a chair and non executive director
In exam: what are the characteristics of effective internal communication:
Accuracy, Clarity, Relevance, Reliability, Credibility, Timeliness
In exam: what are the benefits of efficient internal communication
- Brings about change in the culture and structure of the business more quickly
- encourages staff to be co operative nad innovative
- ensures all relevant staff are helping to meet objectives
What is the management accounting system control and models
Budgeting
What is the critical success factors control system and models
Derives from SWOT in order to survive - picks out most important targets
What are KPI’S control system and models
Looks at results orientated or effort orientated
Results: Sales numbers or market shares
Effort: Number of complaints resolved
What are balance scorecards control system and moels
Looks at balancing financial perspective, customer perspective, internal perspective and learning and growth perspective
What is the benchmarking control system and models
Looks at comparing functions agaisnt others. Either internal, external and functional
What is the management by objectives control system and models
makes sure everyone pulls in the same direction
What are the key factors that need to be in place in order to undertake management by objectives
- Managers targeted performance must be derived from targets for the whole organisation
- managers resulted must be measured in terms of their contribition
- each manager must know their targets
- a managers superior must know what the demand from their manager
What are the 5 C’s of decision making
Consider, consult, crunch, communicate, check
What are the three levels of management information
Strategic information - Board
Tactical information - Middle Management
Operational information - front line managers
In exam: What will be the centre core of a Management Information System
Tactical informtation
What does it mean when a management information system flows horizontally and vertically
horizontally = same level.
vertically = superiors and subordinates
What must he management information system enable
Actual vs plan - must be clearly measured in a way that correct decision can be taken
Who used a company’s financial information
Stakeholders
What is working capital
= Current assets - current liabilities
What are sources of long- term capital
Non current liabilities and equity (share capital and reserves)
Where does equity sit on a balance sheet
Same side as a liability as its money owed the shareholders
What are sunk costs
Once incurred you will never see them again like staff training etc
What are the two ways to do central overheads
Fixed rate or activity based
what is fixed rate central overheads
Fixed overheads are costs that remain constant every month and do not change with changes in business activity levels
What is activity based costing for central overheads
Gives profit centers more incentive to control costs
What is a codification strategy
Knowledge is carefully codified and stored in a database where it can be accessed and used easily by appropriate employees
What is a personalisation strategy
Knowledge is closely tied to the person who developed it and shared mainly for a direct person-to-person contact instructor training programs
What two main areas of the organisation strategy does knowledge management have an impact on
Creating value for customers and operational economies
What knowledge management system is more appropriate for mature services
Codification strategy
Which knowledge management is best used for innovative services
Personalisation strategy
What do articles of association contain
Written rules about running the company agreed by the shareholders, director and company secretaty
If you want to outsource what do you need to do?
Notify the regulators
What is the double entry principle
shows that the business both receives and gives value in each transaction. Shows an earned amount of income which is balanced by an increase in cash
A balance sheet records a company’s what
Net financial position
What happens with dividends for shareholders
They get notified of their shares or their payments may be held back to fund future expansion
What is a finance directors essential role
Ensuring sufficient capital and reserves are available to meet solvency requirements
