MIXED QUESTIONS Flashcards
If an insurer is experiencing severe delays settling its claims, this is most likely to be seen as a failure to:
a. meet competition and markets authority requirements
b. meet contractual obligations
c. treat its customers fairly
d. meet prudential regulatory rules
c.Treat customers fairly.
Within the Lloyds market, which specific body provides a daily insight role which includes approving business plans and new syndicate applications:
a. The Franchise Board
b. The PRA
c. The FCA
d. The Council of Lloyds
A. The Franchise Board
A Takaful Insurer is one that:
A. uses Sharia compliant policies
b. is owned by a parent comany that is a multinational company
c. issues insurance policies in the USA
d. is owend by its policy holders
a.Sharia compliant
In Assessing the profitability of an insurer, what ratio is most useful to an investor?
a. the debt turnover ratio
b. liquidity
c. solvency
d. Return on equity
D. return on equity
In calculating the combines ratio, what information would not be included within the calculation?
a. long term borrowings
b. earned premium net of reinsurance
c. acquisition costs
d. net claims costs
- Long term borrowings
the use of ratios to measure the performance of a business is least useful when:
a. only one or two ratios is used in isolation
b. the business is well established
c. the results are compared to similar businesses
d. good quality financial information is availbale
a. when only one or two ratios are used in isolation
when looking at a claims ratio, the:
a. lower the ratio, the more need for reinsurance
b. lower the ratio, the more secure the position
c. higher the ratio, the more secure the positoin
d. lower the raito, the less need for reinsurance
b - lower the ratio, the more secure the position
liquidity differs from solvency in that solvency is a measure of:
a. pay short term obligations only
b. generate a positive retyrn for shareholders
c. pay long term financial obligations
d. generate a positive cash flow
c. pay long term financial obligations
If the gross profit percentage ratio of an insurance broker were to fall, the most likely reason for this is:
a. an increase in the profit margin in the business
b. the business costs have fallen
c. an increase in premium levels
d. a decrease in premium levels
d. a decrease in premium levels
a company has long term borrowings of £600,000, shareholders equity of 2,000,000 and expenses of £1,000,000. what is the gearing ratio?
a. 30%
b. 33%
c. 50%
d. 60%
a. 30% = Long term borrowings / shareholder equity x 100
a company has long term borrowings of £600,000, shareholders equity of 2,000,000 and expenses of £1,000,000. what is the gearing ratio?
a. 30%
b. 33%
c. 50%
d. 60%
a. 30% = Long term borrowings / shareholder equity x 100
gearing ratios compare:
a. cost of sales against average stock
b. borrowings against shareholders equity
c. profit as a percentage of sales
d. current assets against current liabilities
b. borrowings against shareholder equity
an insurer shows the following figures within its accounts; gross profit before interest charges of £25M, share capital of £30M, reserves of £9M and borrowings of £10M. what is the return on capital employed?
a. 62%
b. 64%
c. 83%
d. 51%
d. 51%
gross profit / share capital + reserves + borrowings x 100
an insurance company has net assets of £100M, liabilities of £80M and has an unearned premimu (net of reinsurance) of £60M, what is its solvency ratio
a. 0.20
b. 1.67
c. 1.33
d. 0.80
b. 1.67
net assets / net earned premium
How might a consumer benefit from buying insurance using an aggregator, rather than direct from an insurer?
a. they would only need to input their details once to get quotations from several insurers
b. they would get the best advice
c. they would have to access all insurers
d. they can do so knowing that the price quoted always reflects the final price from each insurer
a. they would only need to input their details once to get quotations from several insurers
A UK bank is looking to enter the UK insurance market without setting up their own insurance company is most likely to offer:
a. personal lines insurance as an appointed representative of an insurer, selling products in the insurers name
b. commercial lines insurance with selected insurers but branded in their own name
c. personal lines insurance with selected insurers but branded in their own name
d. personal lines insurance by acting as an insurance broker to get the best posible insurance solution
c. personal lines but in their own name
within the lloyds market, which specific body provides a daily oversight role which includes approving business plans and new syndicate applications?
a. the PRA
b. The Franchise Board
c. The Council of LLoyds
d. the FCA
B. The Franchise Board
What is is LEAST likely to be a reason for a UK insurer to consider outsourcing some of its UK operations?
a. To reduce regulatory requirements
b. costs of providing services can be reduced
c. service standards can be improved
d. gaining access to external expertise
a. to reduce regulatory requirements
A Takaful insurer is an insurer that:
a. is owned by its policy holders
b. issues sharia compliant insurance policies
c. issues insurance policies in the USA
d. is owned by a parent that is a multinational company
b. issues sharia compliant insurance policies
If an insurer is experiencing sever delays settling its claims, this is most likely to be seen as a failure to:
a. meet prudential regulatory rules
b. treat its customers fairly
c. meet competition and markets authority requirements
d. meet contractual obligation
b. treat its customers fairly
A global company is one that:
a. identifies specific insurance markets in which to operate subsidiaries
b. operates in different countries but still has a home base
c. views the whole world as one market
d. operates a series of semi-independent operations under a global brand
c. views the whole world as one market
what type of insurance company or organisation would not typically be regarded as a part of the london market?
a. lloyds of london
b. members of the International Underwriters Association
c. London based UK composite insurers
d. Life-insurers
d - life insurers
If an insurance company is said to have ‘shareholder focus’ what does this say about how it operates?
a. it recognises that profitability requires it to play a wider role in society
b. it puts the interests of its shareholders first
c. it looks to achieve a long term balance of the interests of various stakeholders
d.large shareholders are consulted on how the business should balance achieving profitability and an active role in society
b. it puts the interest of the shareholder first
The organic growth of a UK insurer is most likley to be best for the business because it:
a. is the easiest way to achieve economies of scale
b. often offers a better investment return
c. is the quickest way to grow
d. offers a high risk / high reward strategy
b. often offers a better investment return
The role of reviewing the management of debt, cash flow and liquidity and treasury matters within a business is most likely to belong to that of the:
a. chief actuary
b. morning secretary
c. managing director
d. finance director
d. finance director
Management actions are often regarded as consisting of four key elements. what are these?
a. organising, leading, controlling, finance
b. controlling, finance, strategy, leading
c. planning, organising, leading, controlling
d. management, planning, organising, controlling
c. planning, organising, leading, controlling
corporate culture can best be described as:
a. the history of the busines
b. what people do when you are watching
c. the way we do things around here
d. the processes and proceedur
c. the way we do things around here
what would not typically be regarded as a part or component of all businesses?
a. physical resources
b. financial resources
c. human resources
d. intellectual resources
d. intellectual resources
To whom does the UK corporate governance code apply?
a. UK listed companies only
b. all non-UK listed companies
c. Firms not authorised by the FCA and PRA only
d. All firms subject to the Capital Requirements Directive
a. UK listed companies only
A company wishes to improve communication accross the business. what is the least likely reason for this:
a. a change in culture
b. regulatory compliance
c. engagement of staff
d. improved efficiency
b. regulatory compliance
in a corporate body, who usually has the responsibility for developing the strategy of the business?
a. the chief executive officer only
b. the non-executive board of directors only
c. the board
d. the company secretary only
c. the board
the purpose of a non-executive director within corporate governance is primarily:
a. lead of board of directors
b. provide an independent view specifically on regulation and financial matters, and be the organisations representative managing relations with shareholders
c. provide an independent view on matters such as audit, mnagement remuneration and risk management
d. work full time, managing part of the business on a day-to-day basis
c. provide an independent view on matters such as audit, management remuneration and risk management
with the action centrered leadership model, a leader that spends too much time focuing on the needs of individuals is most likely to result in a:
a. political environment where self-interest comes first
b. high achieving environment where all team members feel their needs are addressed
c. high achieving envionment with high levels of individual and team motivation
d. supportive environment but where the team does not always meet its goals.
d. supportive environment but where the team does not always meet its goals.
A business has a culture where decisions are taken with prior reference to as many staff members as possible. This management style is best described as:
a. open door
b. paternalistic
c. hierarchial
d. democratic
d. democratic
The most common reason why a mutual insurance company would demutualise is to:
a. Raise capital
b. reduce its regulatory burden
c. transact life insurance
d. undertake reinsurance business
a. raise capital
The independent companies appointed by lloyds underwriting members to oversee the underwriting of a business by syndicates are known as:
a. brokers
b. franchisers
c. managing agents
d. names
c. managing agents
In what principal way has the UKs legal system influenced the growth of the international insurance market?
a. All insurance policies issued by UK insurers are subject to English law
b. English case law is recognised and its practice is followed in every country
c. international insurance disputes are always referred to English courts
d. many international insurance judicial precedents have been developed under English Law
d. many international judicial precedents have been developed under english law
When an insurance company seeks to play a role in society through sponsorship and community projects, this is known as:
a. An ethical standard
b. a principles - based approach
c. a shareholder focus
d. a stakeholder perspective
d. stakeholder perspective
A life insurance company aims to grow non-organically through horizontal integration. This can most commonly be achieved by:
a. acquiring a small reinsurance company
b.acquiring a specialist general insurance company
c. merging with a large broker network company
d. merging with another life assurance company
d. merging with another life assurance company
What is a public company legally obliged to do, which a private company is not?
a. appoint a company secretary
b. comply with the financial conduct authority’s conduct of business rules
c. purchase errors and omissions insurance
d. register with companies house
a. appoint a company secretary
An insurer uses balanced scorecards within its business. The main purpose of this is to:
a. calculate insurance premiums
b.calculate financial strength
c. monitor its progress of plans
d. reduce its costs
c. monitor its progress of plans
in the context of management information systems, a control cycle is best described as the:
a. production of reports by exception to show where action may be needed
b. compilation and redistribution of an organisations collective skillls
c. consultation between a manager and his team members
d. provision of conditions which will help a manager to achieve his key objectives
a.production of reports by exception to show where action may be needed.
what type of UK based insurance company is always subject to the UK corporate governance code?
a. an insurance company listed on the London Stock Exchange
b. An insurance company with an overseas subsidiary
c. a life assurance company
d. a reinsurance company
A. an insurance company listed on the London Stock Exchange
An international composite insurer is drafting its annual report. in accordance with the companies act 2006, what is the position regarding the inclusion of the chairmans statement in this report?
a. it is always mandatory
b. it is only required if the directors report is included also
c. it is only required if a directors report is not included
d. its optional in all circumstances
d. it is optional in all circumstances
an insurer has committed a breach, under the General Data Protection Regulation Act (GDPR). This breach has a likely hood to risk the peoples rights and freedoms. within what maximum period must the breach be reported to the informations commissioners office?
a. 24 hours
b. 48 hours
c. 72 hours
d. 96 hours
c. 72 hours
Which function within an insurance company is primarily responsible for analysing potential mergers and acquisitions?
a. finance
b. internal audit
c. investment
d. strategy
d. strategy
to whom is financial accounting useful?
a. financial analysts only
b. internal management only
c. the regulator only
d. stakeholders
d. stakeholders
One of the main differences between financial accounts and management accounts is that only:
a. financial accounts are legally required to be prepared and published
b. financial accounts are produced on a calendar year basis
c. management accounts are a useful indication of liquidity
d. management accounts are required to be audited
A. Financial accounts are legally required to be prepared and published
which financial document best gives an indication of a companies liquidity?
a. an auditors report
b. cash flow statement
c. directors report
d. an income statement
b. cash flow statement
A company purchased a machine with a useful life of 8 years for £24,000. Its residual value at the end of the period is estimated to be 2,000. When using straight line depreciation, how much depreciation is shown in the accounts solely for year two of this period?
a. 2,750
b. 3,000
c. 5,500
d. 6,000
a. 2,750.
year one is full value
= 24,000 - 2,000 = 22,000 / 8 = 2,750.
An item has been inserted in a companies balance sheet in respect of machinery. Under which classification will this normally appear?\
a. current assets
b. current liabilities
c. non-current assets
c. non-current liabilities
non-current assets
The internal rate of return is most commonly used to measure the:
a. financial constraints that departments are working under
b. financial viability of undertaking future projects
c. reduction in yield resulting from external costs
d. reduction in yield resulting from fixed costs
d. financial viability of undertaking future projects
In addition to inflation, what external influence should an insurer take into account when
calculating a personal injury claim reserve?
A. Actuarial premium rate increases.
B. Frequency of catastrophe claims.
C. Market share of liability business.
D. Recent outcomes of litigated claims.
D. Recent outcome of litigated claims
When reserving for claims under long-tail insurance classes, the amounts may be discounted to
allow for
A. Corporation Tax savings.
B. general cost savings.
C. expected investment income.
D. market risk fluctuations
C. Expected investment income
How is an insurer’s claims ratio within its combined ratio calculated?
A. Claims incurred net of reinsurance divided by earned premium net of reinsurance.
B. Claims paid divided by net assets.
C. Earned premium net of reinsurance divided by claims paid net of reinsurance.
D. Net assets divided by claims paid.
A. Claims incurred net of reinsurance divided by earned premium net of reinsurance
A company’s measure of liquidity is indicated by a current ratio of 1.36 and a quick ratio of 1.28. The difference between the two ratios usually arises as a result of the amount of
A. debtors.
B. depreciation.
C. goodwill.
D. stock.
D. Stock
Which type of activity in the Standard and Poor’s insurance ratings framework is most likely to be
classified as a modifier?
A. Committee voting.
B. Enterprise risk management.
C. Industry and country risk.
D. Recommending a rating level.
B. Enterprise risk management
Who arranges for a credit rating agency to produce a financial security rating on an insurance
company?
A. The external auditors.
B. The Government.
C. The insurance company.
D. The regulator.
C. The insurance company
An insurer intends to assess its position via a use test. This forms part of the rules relating to
A. capital adequacy modelling.
B. claims reserves adequacy.
C. internal audit processes.
D. risk tolerance levels.
A. Capital adequacy modelling
A UK-based insurer has recently merged with a US-based insurer to form an international organisation with its head office in London. The UK and US insurers individual books of business are uncorrelated. This was a deliberate part of the merger strategy by both companies.
The UK and US insurers have significantly different information technology (IT) platforms which will need to be reviewed. Matt leads the IT Department for the UK insurer and Adam the IT Department
for the US insurer.
In their initial discussions, both Matt and Adam agree that an external server farm should be considered to improve efficiency. The new organisation plans to fund part of this IT project from reserves.
Matt and Adam also intend to recommend a plan to rationalise their departments in the newly-formed organisation. However, it has been observed that in terms of management style, Matt operates an open-door policy and Adam a hierarchical style of management.
- The strategy behind the formation of the new organisation indicates that the focus was:
A. an increased presence in a niche market.
B. an investment opportunity in global equities.
C. to reduce its overall solvency capital requirement.
D. to take full control over sources of supply. - The difference between the management styles of Matt and Adam is that:
A. Adam is more focused than Matt on building team spirit and morale.
B. Adam is more likely to consult his staff than Matt.
C. Matt will be seen as being more approachable than Adam.
D. Matt will be seen as being more autocratic than Adam. - In respect of the new organisation, a statutory external audit will:
A. be legally required to ensure that management accounts reflect the combined organisation.
B. be legally required to ensure that the financial accounts truly reflect the combined organisation.
C. only inspect the UK insurer’s records.
D. only inspect the US insurer’s records. - What will be the implications of the new organisation using a server farm?
A. The current servers used by each organisation will be completely compatible.
B. Daily automatic data backup will no longer be necessary.
C. The data held by each company will be consolidated and cleansed by an independent server
provider.
D. Server storage space will be transferred to independent premises.
5.What will be the consequence of using some of the reserves to fund the IT project?
A. Any subsequent increase in profits may pass to shareholders as dividends.
B. The level of current liabilities will be increased.
C. The level of gearing will be reduced.
D. Net current assets will be depleted.
1 = C. To reduce its overall solvency capital requirement
2 = C. Matt will be more approachable than Adam
3 = B. Be legally required to ensure that the financial accounts truly reflect the combined organisation
4 = D. Server storage space will be transferred to independent premises
5 = A. Any subsequent increase in profits may pass to shareholders as dividends
Leo is the finance director of an insurer. The insurer, a stand-alone company, has recently acquired a new company. The new company has become a subsidiary company of the insurer. Both the insurer and the new subsidiary use claims development tables. The presentation of these tables is as required under the International Financial Reporting Standards (IFRS) requirements.
The insurer now has access to capital from this new subsidiary company. Leo has been asked by an investor to clarify the position regarding the insurer’s capital requirements on an ongoing basis.
The insurer’s financial data indicates that, over three years, the combined ratio has changed from 101.2% to 99.7%.
- What will Leo’s activities most likely include?
A. Calculation of individual claims reserves.
B. Identifying dependencies through flow process analysis.
C. Preparation for reviews by rating agencies.
D. Pricing of new insurance products.
- How will the recent acquisition of the subsidiary be shown on the insurer’s cash flow statement?
A. As a cash inflow from financing activities.
B. As a cash inflow from investment activities.
C. As a cash outflow from financing activities.
D. As a cash outflow from investment activities.
- The use of claims development tables provides valuable information about the:
A. ability to charge higher prices.
B. level of unrealised gains and losses.
C. nature of breaches of internal controls.
D. prior estimates of outstanding amounts.
- In answer to the investor’s query regarding capital requirements on an ongoing basis, Leo should explain that:
A. all financial statements must be assessed and viewed on a consolidated basis.
B. appropriate adjustments may be needed to satisfy the regulator.
C. provided all the figures are included on the insurer’s balance sheet, no additional issues arise.
D. there will be no additional regulatory requirements provided that no trading takes place
between the two companies.
- The change in the combined ratio is most likely to indicate that the insurer has
A. increased its administration expenses.
B. increased its long-term borrowing.
C. improved its investment returns.
D. improved its underwriting results.
1 = C. preparation of reviews by rating agencies
2 = D. As a cash outflow from investment activities
3 = D. Prior estimates of outstanding amounts
4 = B. Appropriate adjustments may be needed to satisfy the regulator
5 = D. Improved its underwriting results
Tim is the supervisor of a team in an insurer’s internal audit department. He involves as many of his team members as possible when making decisions.
Two new employees have recently joined Tim’s team. The two new team members are both experienced in the areas of customer complaints and information technology security management.
The insurer’s culture is to keep services in-house as far as possible. The insurer produces a series of management reports aimed at informing managers about a wide range of business matters.
The insurer is classified as a large company and Bev has been appointed to its audit committee. Bev seeks to understand the full financial position of the insurer and checks the usual financial ratios regularly. The insurer has undertaken a recent liquidity ratio calculation and the result is lower than
the same calculation undertaken last year.
- What management style does Tim operate?
A. Autocratic.
B. Democratic.
C. Hierarchical.
D. Paternalistic.
- The changes to personnel in Tim’s team are most likely to have been driven by:
A. an increase in the number of themed reviews in the audit plan.
B. the need to act as the point of contact for regulators.
C. the need to report to both the audit committee chairman and more than one senior executive
on report findings.
D. a significant increase in outsourced reviews as decreed by the board of directors.
- The Corporate Governance Code on audit committees require Bev to
A. be a qualified actuary.
B. have just one other person to work with her.
C. regularly review the effectiveness of Tim’s team.
D. work under the guidance of the external auditor.
- With regard to the various management reports produced within the insurer, Tim’s team
A. collates any required by the regulator.
B. oversees the production of those required solely for management purposes.
C. verifies any required by the regulator before they are sent.
D. verifies their reliability and accuracy.
- The result of the recent liquidity calculation indicates that since last year the insurer’s liquidity has
A. become more volatile.
B. worsened.
C. improved.
D. been unaffected.
1 = B. Democratic
2 = A. An increase in the number of themed reviews in the audit plan
3 = C. regularly review the effectiveness of Tims team
4 = D. Verifies their reliability and accuracy
5 = C. Improved
Zoe works for an insurer which is a wholly owned subsidiary of a bank. The insurer has recently started a major new sales campaign via the internet and the bank feels that the new campaign will offer significant benefits for its customers. The policies sold through this campaign will usually have monthly premium payments.
Zoe acts in a first response role in the insurer’s claims department and is currently handling a household policy claim from Tom where significant property damage has occurred.
Zoe’s friend, George, works at the same insurer in the finance department. Included amongst his tasks is the responsibility for raising debit notes.
Due to significant expenditure on the insurer’s campaign, for which results are only just beginning to come through, the insurer’s return on equity (ROE) ratio is currently 6%.
A credit rating agency has just completed an assessment of the insurer. This assessment included work under the specific classification of Business Risk Profile.
- The significant benefits to the bank’s customers of the new campaign run by the insurer are most likely to relate to:
A. the availability of non-standard classes of business.
B. higher standards and wider availability of customer service.
C. a range of options on cover and price.
D. specifically tailored solutions for the individual customer.
- Zoe’s specific role in respect of Tom’s claim is to:
A. ensure the claim is paid promptly.
B. minimise the potential for further damage.
C. obtain authority to make an interim payment.
D. oversee the repairs process.
- The credit rating agency’s specific assessment will have considered the insurer’s
A. competitive position.
B. enterprise risk management.
C. government support.
D. sovereign risk.
- For what transactions will George raise debit notes?
A. All amounts owed to the business by other parties.
B. All monies owed by the business to other parties.
C. Monies owing to reinsurers and for outstanding claims only.
D. Premiums owed by policyholders only.
- What does the insurer’s ROE of 6% indicate?
A. The insurer is being charged a 6% interest rate on its long-term borrowings.
B. The insurer is making a 6% profit relative to its capital.
C. The insurer is obtaining a 6% interest rate on its instalments.
D. A shareholder is making a 6% profit before tax on his investment.
1 = C. a range of options on cover and price
2 = B. Minimise the potential for further damage
3 = A . Competitive position
4 = A. All amounts owed to the business by other parties
5 = B. The insurer is making a 6% profit relative to its capital
Mick is a supervisor in an insurer’s customer service department. He has received a complaint from a policyholder, Meg, regarding the use of her personal data by the insurer’s outsourced call centre in India. She does not think this centre has any right to know her personal details. Mick is able to verify
that the correct procedure has been followed.
Mick is collating data for a review of activities against key performance indicators (KPIs). Most of this data relates to effort-oriented KPIs but one particular measure causing concern represents the ‘bottom line’. Mick has referred this concern to management, who are assessing appropriate action
to be taken in accordance with the second line of defence.
The insurer uses an activity-based costing system. Mick’s department is regarded as a profit centre for this purpose.
The following financial data is available in the insurer’s accounts:
Claims £80,000,000
Expenses £12,000,000
Acquisition Costs £17,000,000
Earned Premium Net of Reinsurance £110,000,000
- Mick’s confirmation that the correct procedure has been followed is most likely to be due to:
A. appropriate regulatory approval for use of the call centre.
B. the choices made in the insurer’s data protection registration.
C. the level of training given to the employees in the call centre.
D. Meg having given her express consent.
- The KPI measure causing concern to Mick is most likely to be
A. the number of complaints resolved within a planned timeframe.
B. a reduction in market share.
C. a significant increase in staff turnover.
D. staff failing to respond to surveys on staff relations.
- Following the referral from Mick, what action should be taken by the insurer?
A. Determine changes required to reduce the level of the problems.
B. Discipline the staff concerned.
C. Disclose the issue to the regulator.
D. Implement a recovery plan.
- Under the activity-based costing system used by the insurer, Mick’s department will:
A. be allocated a fixed cost per annum by a central department.
B. be invoiced by a central department on a cost per unit basis.
C. charge other departments a fixed cost per annum.
D. operate a zero-based budgeting approach.
- The insurer’s combined ratio is
A. 83.63%
B. 88.18%
C. 99.09%
D. 100.91%
1 = D. Meg having given her express consent
2 = B. a reduction in market share
3 = A. Determine changes required to reduce the level of the problems
4 = B. Be invoiced by a central department on a cost per unit baiss
5 = C. 99.09% =
Claims + Expenses + Acquisition costs / Earned premium net of reinsurance x 100
A shareholders’ liability under a proprietary company is:
A. 50% of the nominal value of their shareholding.
B. the nominal value of their shareholding.
C. 50% of the total liabilities of the company.
D. unlimited.
B. The nominal value of their shareholding
Two factors that have allowed the City of London to develop into an international insurance centre
are?
A. highly qualified personnel and office space both being available at competitive prices.
B. the high number of domestic insurers and a lack of foreign insurers.
C. the growth in numbers of both direct insurers and aggregators.
D. white-labelling products being available and the growth in the number of tour operators.
A. Highly qualified personnel and office spave both being available at competitive prices
Insurer X is a multinational company and insurer Y is a global company. This means that only
A. insurer X regards the world as one potential market.
B. insurer Y’s aim is to be regarded as a centralised business.
C. insurer Y is permitted to have a base in the UK.
D. insurer Y operates in a number of different countries.
B. Insurer Y’s (Global company) aim is to be regarded as a centralised business.
What are customer stakeholders of an insurer most likely to expect?
A. Competitively-priced products.
B. Fair competition to be evidenced.
C. Increased share value.
D. Sustained and increasing investment growth
A. competitively priced products
Which distribution channel for insurance most commonly offers white-labelled products?
A. Aggregators.
B. Intermediaries.
C. Retailers.
D. Travel agents
C. Retailers
The chief actuary of an insurance company is usually responsible for
A. management of debt and cashflow.
B. overseeing the risk management process.
C. preparing the profile of gross premium by currency.
D. technical pricing of new and existing products
D. technical pricing of new and existing products
An insurance company’s tactical plan may refer to
A. development of new insurance products over a 2-year period.
B. long-term resource allocation over a 10-year period.
C. routine day-to-day methods of working.
D. weekly monitoring of budgets.
A. development of new insurance products over a 2-year period.
The senior managers of an insurance company are reviewing performance against a monthly
requirement to have no IT downtime of greater than 30 minutes a quarter. They are reviewing a
A. key effort-oriented performance indicator.
B. key results-oriented performance indicator.
C. key risk indicator.
D. key strategy analysis.
C. key risk indicator.
Which UK companies are required to report whether they are compliant with the UK Corporate
Governance Code?
A. All UK companies.
B. Only those which are limited companies.
C. Only those listed on the London Stock Exchange.
D. Only those with a turnover in excess of £1,000,000.
C. Only those listed on the London Stock Exchange
Which UK companies must have Articles of Association?
A. Only those listed on the London Stock Exchange.
B. Only those which are private companies.
C. Only those with a turnover in excess of £1,000,000.
D. All those which are registered with Companies House.
D. All those which are registered with Companies House.
What is shown respectively on a company’s income statement and balance sheet?
A. The income statement shows the financial position at a particular point in time and the balance
sheet shows the results of transactions during the accounting period.
B. The income statement shows the results of transactions during the accounting period and the
balance sheet shows the financial position at a particular point in time.
C. The income statement shows the financial position at a particular point in time and the balance
sheet shows the sources and uses of cash.
D. The income statement shows the sources and uses of cash and the balance sheet shows the
financial position at a particular point in time
B. The income statement shows the results of transactions during the accounting period and the
balance sheet shows the financial position at a particular point in time.
Which type of organisation deals with underwriting on behalf of an insurer and undertakes
activities such as marketing and administration?
A. An aggregator.
B. A captive insurer.
C. A managing general agent.
D. A reinsurance company.
C. A managing general agent.
What is the primary function of financial accounting?
A. To allow internal auditors to report on the adequacy of control systems.
B. To assist managers in formulating strategic plans.
C. To provide information on individual departments within an organisation.
D. To report the financial position to all stakeholders.
D. To report the financial position to all stakeholders.
Management accounting differs from financial accounting in that management accounts
A. are distributed to all stakeholders.
B. are prepared specifically for calculation of taxation liability.
C. are used to determine shareholders’ dividends.
D. need not be audited by external auditors.
D. need not be audited by external auditors.
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?
A. Balance sheet.
B. Cash flow statement.
C. Management accounts.
D. Profit and loss account.
A. Balance sheet.
When depreciation is shown in a company’s financial accounts, accounting concepts require that
this represents the
A. amount of the company’s turnover minus the cost of sales.
B. cost of an asset apportioned over the financial period during which the company will benefit
from the use of that asset.
C. difference between the amount paid for acquiring a company and the value of the net assets of
that company when acquired.
D. money used to finance daily trading activities.
B. cost of an asset apportioned over the financial period during which the company will benefit
from the use of that asset.
An insurance company uses the double-entry accounting principle for recording insurance
transactions to reflect that it has
A. earned an amount of income which is balanced by an increase in cash.
B. made long-term investments which are balanced by an increase in cash.
C. made provision for outstanding losses which are balanced by a decrease in cash.
D. sold assets which are balanced by a decrease in cash.
A. earned an amount of income which is balanced by an increase in cash.
A balance sheet records a company’s
A. gross cash flow.
B. gross financial position.
C. net cash flow.
D. net financial position.
D. net financial position.
Which method of projecting the total cost of claims solely extrapolates the paid claims and does
NOT use any other information?
A. Bornhuetter-Ferguson.
B. Loss ratio method.
C. Projection of incurred claims.
D. Projection of paid claims.
D. Projection of paid claims.
An insurer is establishing its claims reserving policy on a discounted claims basis. This confirms that
A. claims values appear to be inflated.
B. incurred but not reported claims are being written-off.
C. investment income is being taken into account.
D. voluntary excesses are being applied by policyholders.
C. investment income is being taken into account.
How is an insurer’s gearing ratio calculated?
A. Long-term borrowings divided by shareholders’ equity.
B. Short-term borrowings divided by shareholders’ equity.
C. Shareholders’ equity divided by long-term borrowings.
D. Shareholders’ equity divided by short-term borrowings.
A. Long-term borrowings divided by shareholders’ equity.
How is an insurer’s solvency coverage ratio calculated?
A. Cash plus investments divided by total liabilities.
B. Regulatory capital available divided by surplus regulatory capital.
C. Surplus regulatory capital divided by regulatory capital available.
D. Total liabilities divided by cash plus investments.
C. Surplus regulatory capital divided by regulatory capital available.
When looking at the financial strength of an insurance company, a rating agency’s methodology
takes into account the company’s capital adequacy which represents its
A. ability to efficiently manage cash flows and borrow money if required.
B. combination of the loss ratio, expense ratio and combined ratio.
C. potential requirement for additional capital or liquidity in the future.
D. quality and level of capital required to run the business
D. quality and level of capital required to run the business
The financial strength of an insurance company as measured by a ratings agency is always
A. based only on publicly-available information.
B. a measure of its ability to pay all debts.
C. a measure of its ability to pay claims.
D. shown in its cash flow statement.
C. a measure of its ability to pay claims.
When looking at the solvency requirements of insurance firms, the Prudential Regulation Authority
states that the probability factor that should NOT be exceeded is
A. 1 chance in 200 over a 12-month timescale.
B. 1 chance in 200 over an 18-month timescale.
C. 1 chance in 500 over a 12-month timescale.
D. 1 chance in 500 over an 18-month timescale.
A.
Mark is employed as a risk manager in the London office of a large multinational retail group, which is
listed on the London Stock Exchange. Mark has some shares in the company. The multinational retailer’s main offices are located in London with subsidiary companies based in New York, Paris, Frankfurt and Dubai.
The London office has arranged to transfer part of the group insurance risk to an insurer, owned by the
group, based in Dublin.
The annual accounts of the London office are compiled each year to International Financial Reporting
Standards.
On 5 May Mark is on an insider list and learns that the London office is undergoing serious financial
issues. The company is looking to sell off overseas businesses, including the New York office, to release
equity.
The London office is a large multi-storey office block purchased using a bank loan. The company have
agreed to pay back the loan over the next 15 years.
- The insurance company that is based in Dublin is most likely to be a
A. captive company.
B. mutual company.
C. reinsurance company.
D. takaful company
- Where, if at all, in the annual report accounts, must a statement appear from the London based
chairman of the retail group?
A. It must form part of the balance sheet.
B. It must form part of the directors’ report.
C. It must form part of the income statement.
D. It is not required.
- Under which Act would it be a civil offence if Mark were to sell his shares following information
obtained in May?
A. Bribery Act 2010.
B. Companies Act 2006.
C. Financial Services and Markets Act 2000.
D. Proceeds of Crime Act 2002.
- What scope of risks within risk management is likely to be affected by the London office’s financial
issues and the need to sell off the New York office?
A. Credit.
B. Group.
C. Market.
D. Operational
- The bank loan used to purchase the London office building would be classified on the company
balance sheet as being a
A. current asset.
B. current liability.
C. non-current asset.
D. non-current liability
- A. captive company.
- D. It is not required.
- C. Financial Services and Markets Act 2000.
- B . Group
5 - D. non-current liability.
Joe is a business manager at a UK-based, publicly-quoted insurance company. Joe has been asked by theBoard to clarify a number of matters relating to the use of information within the company and some associated points. The company has a vast amount of information that has been collected by them including policy and loss data.
Consideration is being given to who should have access to such information. The company also reuses
information especially in relation to the provision of underwriting administrative services. Consideration is being given to where this best fits.
Given the importance of information within the company, it has been deemed essential that the
Information Technology (IT) department have a broad role, working closely with the business.
Consideration is being given as to what the IT department should therefore be involved in.
The company has been making satisfactory profits and there has been debate about the information
shareholders receive in relation to the distribution of profits and dividend payments. The company
receives information in the form of a financial strength rating from a rating agency. However, some
executives have questioned the value of this and the rating agency process.
- Joe should advise the Board it is important that the policy and loss data is
A. restricted to the use of the chief actuary only.
B. never used again as this is not permitted by the Data Protection Act 1988.
C. readily accessible by all appropriate employees.
D. readily accessible by all stakeholders.
- Joe should advise the Board that the underwriting administration services information currently in
use is most commonly known as a
A. bespoke benchmarking system.
B. codified knowledge management system.
C. learning management system.
D. personalised knowledge management system.
- Joe should advise the Board that if the IT department is to fulfil its role within the company, it must
A. carry out themed audits of the IT area.
B. ensure all employees carry out controlled functions.
C. make a proactive contribution to the development of business strategy.
D. procure offices to meet the accommodation needs.
- Joe should advise the Board that shareholders are given information on dividend payments which
recognises that
A. only individual and personal messages are supplied to shareholders on the reasons for payment
levels.
B. payments are never made when the underlying value of the company’s shares has increased.
C. payments increase on an automatic basis year-on-year.
D. shareholders’ payments may be held back to fund future expansion.
- Joe should advise the Board that a strong rating from a ratings agency
A. assists the insurance broker who distributes the company’s insurance products to decide on
their risk appetite when placing business.
B. is a highly-subjective process as it uses little quantitative and qualitative information.
C. is only ever provided on publicly-available information.
D. will have no connection with the company’s earnings stability or its ability to grow capital.
- C. readily accessible by all appropriate employees.
- B. codified knowledge management system.
- C. make a proactive contribution to the development of business strategy
- D. shareholders’ payments may be held back to fund future expansion.
- A. assists the insurance broker who distributes the company’s insurance products to decide on
their risk appetite when placing business.
John is considering whether to buy shares in a listed insurance company. His neighbour, Mary, works in
the company’s finance department and provides John with a copy of the latest report and accounts. John notes that the company has negotiated some new loans. He calculates the return on equity and the liquidity ratios.
Mary explains to John that the company has an organic growth plan to increase revenue by 30%.
- In which financial statement within the report and accounts will the receipts from the new loans
been shown?
A. Cash flow from financing activity.
B. Cash flow from investment activity.
C. Cash flow from operating activity.
D. Income as a net investment return.
- In which financial statement within the report and accounts will John find details of the company’s
assets and liabilities?
A. Balance sheet.
B. Cash flow.
C. Profit and loss.
D. Revenue.
- What information has John used to calculate the return on equity?
A. Assets and liabilities.
B. Gross profit and sales revenue.
C. Long-term borrowings and shareholders’ equity.
D. Profit after tax and capital.
- The company’s liquidity ratio will show the relationship of
A. borrowings as a percentage of equity.
B. liabilities to cash and investments.
C. net assets to income.
D. profit to shareholders’ capital.
- What is the main disadvantage of the company’s chosen growth structure?
A. Building the business may take a long time to achieve.
B. The business may be too dependent on a limited number of suppliers.
C. Customer service may be reduced whilst changes are being implemented.
D. Organic growth is a risky strategy.
- A. Cash flow from financing activity
- A. Balance sheet
- D. profit after tax and capital
- B. liabilities to cash and investments.
- A. Building the business may take a long time to achieve.
An insurer has recently expanded because employee numbers have increased following the acquisition
of a specialist firm of loss adjusters. The insurer aims to provide an enhanced claims service.
The insurer operates a system whereby each department sets its own budget for a 12-month period.
This is incorporated into a company budget by John, the finance director, who will allow some budgeting changes to be made if actual costs unexpectedly change during the financial period. The budget is used by senior management as part of its management accounting process to plan its objectives and to assess whether these objectives are being met. John as the finance director is also responsible for all the insurer’s financial accounts.
- The acquisition by the insurer is an example of
A. financial growth.
B. horizontal integration.
C. organic growth.
D. vertical integration.
- At what level of information will the insurer’s overall budget be categorised?
A. Operational.
B. Regulatory.
C. Strategic.
D. Tactical.
- John’s essential role within the insurer is best described as
A. conducting loss modelling to predict aggregate exposure.
B. ensuring that sufficient capital and reserves are available to meet solvency requirements.
C. examining activities to ensure that practices conform to documented operational procedures.
D. protecting the insurer’s objectives and reputation.
- The financial accounts which John produces differs to the management accounts that are produced
internally within the insurer. This is because the financial accounts
A. always involve internal planning whereas management accounts can always be formulated to
meet the insurer’s requirements.
B. are only providing forecasts whereas management accounts are based on historical information.
C. can be formulated to meet the insurer’s requirements whereas management accounting is only
concerned with internal planning.
D. record the financial impact of events whereas management accounts provides forecasts.
- The budgeting system operated by the insurer is known as
A. bottom-up flexible budgeting.
B. rolling 12-month budgeting.
C. top-down flexible budgeting.
D. zero-based budgeting
- D. vertical integration.
- C. Strategic.
- C. examining activities to ensure that practices conform to documented operational procedures.
- D. record the financial impact of events whereas management accounts provides forecasts.
- A. bottom-up flexible budgeting.
Tim is the newly-appointed chief executive officer of an insurance company. He has been tasked with
turning the business around to a more profitable concern as it has been experiencing difficult trading
conditions.
Tim leads the Board of the company, which comprises the usual executive roles. He realises that a radical shake up of the business is required which, for a time, will require new working regimes and tight deadlines if the new targets set by the Board are to be achieved.
Currently recorded written premiums are £90,000,000 and earned premiums are £95,000,000.
When conducting a benchmarking exercise against similar-sized competitors, it is found that whilst the
combined ratio compares favourably, the company’s return on capital employed is significantly lower.
The sales director suggests that the claims function could be outsourced to a specialist-claims handling
service provider under the terms of a service level agreement stipulating that compliant standards of
service are maintained. In doing so this would free up resources to enable the company to concentrate
on core activities and that new business could grow significantly if the current 30-day period of credit
given to brokers was extended to 90 days.
- Which management style would it be best for Tim to adopt during this period of radical change?
A. Autocratic.
B. Consultative.
C. Open door.
D. Paternalistic.
- What is the most likely explanation for the company’s return on capital employed being lower than
its competitors?
A. Excessive administrative expenses.
B. High reinsurance costs.
C. Over-reserving of outstanding claims.
D. Poor investment returns.
- If the company were to adopt both of the sales director’s proposals, what would be the most
likely consequence?
A. The additional growth will always result in the acceptance of poor quality business.
B. The additional business will stretch existing operational resources.
C. Compliance will become less demanding.
D. Financial resources will be impaired.
- Who would be responsible for compliance of the claims function if the activity was outsourced to a
specialist claims-handling company?
A. The Financial Conduct Authority would be solely responsible.
B. The insurer would be solely responsible.
C. The specialist claims handler would be solely responsible.
D. The insurer and the specialist claims handler would be jointly and severally responsible.
- What is evidenced by the current levels of written premiums and earned premiums?
A. A declining book of business.
B. Excessive business acquisition costs.
C. Increased reinsurance costs or cover.
D. Strengthening of claims reserves.
- A. Autocratic.
- D. Poor investment returns.
- D. Financial resources will be impaired.
4.B. The insurer would be solely responsible.
- A. A declining book of business
An insurer would use forecasting as a part of its budgeting process to:
a. quantify future levels of profitability.
b.plan its future need for capital resources.
c.establish the level of risk associated with delivering the business plan.
d.identify the differences between planned and actual income and expenditure.
b. plan its future need for capital resources.
Within this business, action is only taken where variations to budget are outside plus or minus 3% of target. What is this approach called?
a. Flexible budgeting.
b.Top down budgeting.
c.Management by objectives.
d.Management by exception
d.Management by exception
A business plan that focuses on the policies necessary over one to three years to implement key elements of strategy is called a[n]:
a. strategy plan.
b. tactical plan.
c. controls plan.
d. operational plan.
b. tactical plan
In the Kaplan and Norton balanced scorecard, which perspective of business performance is NOT explicitly measured?
a. Customer.
b. Risk management.
c. Financial.
d. Internal.
b. Risk management
Tactical information used by middle management would include:
a. information on overall business profitability.
b. variance analysis reports.
c. data on future market prospects.
d. data on total cash needs.
b. variance analysis reports.
Within the five ‘C’s decision making model, the first stage of decision making is to:
a. consult.
b. check.
c. crunch.
d. consider.
d. consider.
A departmental manager has a budget that is added to at the end of each month so he always knows what his budget will be for the next twelve months. What is this type of budgeting known as?
a. Zero-based budget.
b. Flexible budget.
c. Fixed budget.
d. Rolling budget.
d. Rolling budget.
