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Lm2 > 4Market Security > Flashcards

4Market Security Flashcards

1
Q

Solvency for insurer

A

Assets > or equal to paid claims + unpaid claims + operating costs

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2
Q

Solvency margin

A

Amount assets outweigh liabilities

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3
Q

Calculating Reserves

A

Putting a value on known / unknown unpaid claims

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4
Q

IBNR figure

A

Incurred but not reported (for reserving for unknown and unpaid claim reserves)

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5
Q

Assets

A

Tangible and intangible (good will)

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6
Q

Liabilities

A

Claims (paid and outstanding)
Costs of reinsurance

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7
Q

Liquidity

A

How easy can you turn assets to cash

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8
Q

Ratios

A

Loss - premium vs claims (paid & outstanding)

Combined - operating costs + claims against premiums and investment income

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9
Q

Solvency II

Applies?

Aims?

Objectives?

What does uk now do

A

Pan European regime across eu member states bought in by PRA. EU granted equivalence status by UK, EU hasn’t reciprocated yet

Aims: make sure insurers pay claims

Objectives:

  1. Better regulation
  2. Deeper integration of eu insurance market
  3. Enhanced policyholder protection
  4. Improved competitiveness of eu insurance

Uk has new legislation post brexit - the solvency II and insurance amendments etc eu exit regulations 2019 so still follows solvency II

Uk has to obtain equivalence status from eu

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10
Q

3 pillars of Solvency II

Quantitative requirements

A

Insurers have to demonstrate they have adequate financial resources to cover exposure to risks

Must consider business risk as well as insurance related risks

Solvency capital requirements SCR - amount assets must exceed liabilities. If breached will be a warning to regulators.

minimum capital requirement MCR - lower amount. Intervention.

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11
Q

3 pillars of Solvency II

Supervisory review

A

Requires insurer has effective risk management system (risk management and assessment process) owned and implemented by senior management

Must hold capital against risks

Own risk and solvency assessment ORSA - internal review by insurers. Identifies, monitors, manages short & long term risks and determines necessary capital requirements for solvency

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12
Q

3 pillars of Solvency II

Disclosure

A

Disclosure of info publically

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13
Q

Who is responsible for implementing solvency ii

A

Senior management (risk managers, finance personnel actuaries and uw team)

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14
Q

Example of business risk faced by insurer

Credit counterparty risk

A

Policyholder - premium unpaid
Reinsurer - solvent?

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15
Q

Example of business risk faced by insurer

Operational risk

A

Uws - writing risks
Claims staff - paying claims outside authority
Operation of business - can everyone access building / work
Systems - are all systems working

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16
Q

Example of business risk faced by insurer

Market risk

A

Investment s failing

Ex rate losses when working with multiple currencies

17
Q

Example of business risk faced by insurer

Liquidity risks

A

Can you realise investments quickly for cash flow

18
Q

Example of business risk faced by insurer

Group / capital risk

A

Eg where have a syndicate + company market, not doubling up on risk

If sharing one reinsurance programme, is it enough to cover whole group

19
Q

Example of business risk faced by insurer

Enterprise risk

A

Enterprise Risk Management - management of wider ranging risks that impact entire business

20
Q

Role of regulators

A

Pra - based in uk. create competitive insurance sector. Protect policyholders by ensuring robustness of firms, support insurers to provide long term capital and growth

European insurance and occupational pensions authority EIOPA supervisory body in for EU on Solvency II - goals:

  • protection for consumers, build trust in system
  • regulation and supervision
  • harmonisation and application of rules
  • oversight of cross border groups
  • coordination of eu supervision
21
Q

Solvency ii and Lloyds

A

Lloyds treated as single entity. Has element of internal regulatory control permitted by regulators

22
Q

Lloyds chain of security

A

Lloyds central fund - demonstration of solvency to regulators. Pot of money held centrally by Lloyds.

Final link in Lloyds chain of security

23
Q

Lloyds chain of security
Link 1 syndicate level assets

A

Premiums which are held in trust funds. Held in ways that can be liquidated quickly to pay claims

24
Q

Lloyds chain of security
Link 2. Members Funds at Lloyds (FAL)

A

If premiums aren’t big enough to pay claims, second line of available funds are deposits at lloyds by members of syndicates as a condition of becoming an investor in lloyds. If exhausted, members are asked for more funds to their limit of liability.

The Corporation reviews each SCR and uplifts it by a % to ensure sufficient capital available. Known as Economic Capital Assessment. Can be LCs, cash, other securities

25
Q

Lloyds chain of security
Link 3 (final) central assets

A

Members funds depletion
Last resort - central fund
Fed by a % of all written premium
Controlled by council of Lloyds under central fund byelaws

26
Q

What does a rating agency consider

A

Ability to pay claims
Operating performance (incl quality of management , biz and past profits)
Business profile

27
Q

Four objectivities of solvency ii

A

Better regulations, deeper integration, enhanced policyholder protection, improved competitiveness

28
Q

Three pillars of solvency ii

A

Quantities requirements, supervisory review and disclosure

29
Q

Business risks are

A

Market risk
Credit risk
Liquidity risk
Operational risk
Group / capital risk

30
Q

In volatile classes (aviation, liability (marine and general) how much do you increase premium/claims estimates by

A

50%

31
Q

What is the contribution to the fund in 2022

A

written premium. for insurers who are:
existing - 0.36%
new (2020-22) - 1.4% for 3 years

Lm2 (9 decks)

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