SA3 (IFoA) Past Papers Flashcards
Describe the application of contract boundaries in Solvency II Technical Provisions
Under Solvency II, the boundary for existing insurance contracts is set at the point at which the company:
- Can unilaterally terminate the contract / refuse to accept a premium; or
- Amend the benefits or premiums in such a way that the premiums fully reflect the risks.
The Contract boundary sets the point at which premiums can be recognised on existing contracts.
These contracts are captured under premium provision within the technical provisions.
Within the contract boundary, both contractual and recurring premiums and Premiums arising from policyholder options to renew or extend their policies should be taken into account on a best estimate basis.
Describe the legal obligations basis for unincepted contracts in Solvency II Technical Provisions.
The calculation of technical provisions also needs to include allowance for legally-obliged unincepted contra cts.
These contracts are also captured under premium provision within the technical provisions.
These are contracts which have not yet incepted, but the corresponding liabilities cannot be waived or reduced by the company as of the valuation date.
The crutial consideration is whether or not the contracts are legally enforceable or on what terms a (re)insurer could avoid the liability associated with the exposure.
There is an associated impact on delegated authority or binder business which must be assessed on a look through basis with the boundaries of the actual underlying contract of insurance being tested.
3 Circumstances where legally obliged unincepted business may be material
The legal obligations basis may be material where business is written, e.g. by means of:
- delegated underwriting authorities such as binders
- brokers, e.g. in cases where there are backlogs of aggregated pipeline premiums
- year-end renewals, e.g. reinsurers entering into 1 January renewals prior to a 31 December valuation date
- Tacit renewal agreements where the business is automatically renewed unless the policyholder decides to move the cover to another provider.
Explain whether it would be
included in a valuation of Solvency II Technical Provisions as at 31 December
2016:
an insurance contract incepting on 1 January 2017
Almost certainly should be included as it is unlikely that a contract incepting the day after the valuation date was not obliged before.
Explain whether it would be
included in a valuation of Solvency II Technical Provisions as at 31 December
2016:
an insurance contract due to renew on 1 February 2017
Not certain to be included, dependent on renewal terms if premium for renewal can be amended or be refused then may not be obliged.
Explain whether it would be
included in a valuation of Solvency II Technical Provisions as at 31 December
2016:
a “Losses Occurring During” reinsurance contract incepting on 1 April 2017
Possible that it should be included as a future management action…
… provided it protects inwards business that has already been written…
… or if it has been legally obliged
Explain whether it would be
included in a valuation of Solvency II Technical Provisions as at 31 December
2016:
premium expected to be written during 2017 on binding authorities in force as at 31 December 2016
Unlikely that the full amount of the binder premium should be included.
Only those underlying policies that have been legally obliged at the valuation date should be included, as the binding arrangement itself is not a contract of insurance.
List broad categories of cover likely to be offered under “comprehensive” motor insurance policies
- Personal injury to third parties
- Damage to property belonging to third parties
- Damage to the insured vehicle
- Likely to include both accidental and malicious damage
- Including damage arising from fire or theft
- (Possibly some types of) personal injury to the insured
State the key benefits provided under:
Employers’ Liability
Employers’ Liability indemnifies the insured employer
… against legal liability to compensate an employee or his or her estate
… for bodily injury, disease or death
… suffered in the course of employment
… owing to the negligence of the employer
Employees’ property may sometimes be covered.
State the key benefits provided under:
Worker’s compensation
Worker’s compensation provides compensation to an employee or his or her estate
… for bodily injury, disease or death
… suffered in the course of employment
… regardless of any fault on the part of the employer
.. paid directly to the employee
State the key benefits provided under:
Public liability
Public liability indemnifies the insured against legal liability to third parties
… where the insured is at fault
… for the death of or bodily injury to a third party
… or for damage to property belonging to a third party
… other than those liabilities covered by other liability insurance.
Explain the differences between:
- Employers’ liability
- Workers’ compensation
- Public liabilitiy
- Employers’ liability and public liability policies only respond if the employer is negligent, whereas Workers’ compensation will respond regardless of fault.
- Employers’ liability and Workers’ Compensation will cover injuries to employees, public liability cover injuries to people who are not employees.
- Public liability also covers property damage
- Employers liability is compulsory, where public liability is not.
