Chapter 4 Flashcards
(14 cards)
What is solvency?
Maintaining the balance between assets and liabilities.
Assets include cash and items convertible to cash, while liabilities encompass both paid and unpaid claims along with operating costs.
What do assets include?
Cash and items of value convertible into cash such as buildings or investments.
Assets are crucial for assessing solvency.
What do liabilities include?
Claims both paid and unpaid, together with operating costs such as reinsurance or staff costs.
Understanding liabilities is essential for solvency evaluation.
What is Solvency II?
A pan-European solvency regime operating across all 27 Member States of the European Union.
It aims to provide a consistent regulatory framework.
What are the four main objectives of Solvency II?
- Better regulation
- Deeper integration
- Enhanced policyholder protection
- Improved competitiveness
These objectives guide the implementation and purpose of Solvency II.
What are the three pillars of Solvency II?
- Quantitative requirements
- Supervisory review
- Disclosure
These pillars form the structural framework of Solvency II.
What types of risks do businesses face under Solvency II?
- Market risk
- Credit risk
- Liquidity risk
- Operational risk
- Group/capital risk
Identifying these risks is crucial for compliance with Solvency II.
What is the role of the European Insurance and Occupational Pensions Authority (EIOPA)?
To increase the stability of the financial system and the transparency of markets and financial products, as well as the protection of policyholders.
EIOPA oversees the implementation of Solvency II across EU member states.
What new objectives were created by the Financial Services and Markets Act 2023 for UK regulators?
Improving the competitiveness and growth opportunities for the UK financial services sector.
This reflects the UK’s regulatory shifts post-Brexit.
What does ‘equivalence’ status refer to in the context of UK regulatory regime?
The status the UK Government is seeking from the EU to align its regulations with EU standards.
Achieving equivalence is important for maintaining trade relationships post-Brexit.
What are the three parts of Lloyd’s chain of security?
- Premium funds
- Funds deposited by members/Names
- Central Fund topped up by contributions from premiums
This chain ensures financial stability within the Lloyd’s marketplace.
What do rating agencies provide for insurers and reinsurers?
Published gradings based on factors such as operational management and business profile.
Ratings influence market perception and operational success.
True or False: Ratings awarded by agencies can only rise.
False
Ratings can rise and fall, affecting an insurer’s business.
What is a market rating in the Lloyd’s marketplace?
A rating assigned to insurers and reinsurers reflecting their financial stability and operational capabilities.
Market ratings are crucial for investor confidence.
