Exam Questions Flashcards
(219 cards)
1
Q
An underwriter working for a large insurer is considering her own position under the Financial Conduct Authority’s Training and Competence Sourcebook. She should be aware that:
A. a regular review of her competence should take place.
B. she is expected to have a working knowledge of the other departments within the firm.
C. she should take an external examination at least every three years.
D. there is no requirement for her competency to be supervised.
A
A
2
Q
What capital requirements must a UK insurer have with regard to the size and nature of its business?
A. They must always be adequate.
B. They must always be held in long-term investments.
C. They must always be in surplus.
D. They must always be more than the previous year.
A
A
3
Q
What is the most likely objective of an insurer operating a self-auditing process with peer checks?
A. To enable any identified corrective action to take place at the earliest opportunity.
B. To enable training programmes to be developed to cover new products and processes.
C. To improve inter-departmental service level agreements.
D. To maximise cost-saving opportunities and improve product terms and conditions.
A
A
4
Q
Firm X writes liability insurance and firm Y writes commercial property insurance. When considering the capital requirements of each firm, it is reasonable to assume that, compared to firm Y, firm X requires a
A. greater capital allocation but can benefit from more favourable investment opportunities.
B. greater capital allocation but must adopt a more risk-averse investment strategy.
C. lower capital allocation but can benefit from more favourable short-term investment opportunities.
D. lower capital allocation but must adopt a more risk-averse short-term investment strategy.
A
A
5
Q
Jack entered into an insurance contract and received his documentation 10 working days later. How did this specifically satisfy the requirements of the Contract Certainty Code of Practice?
A. The contract included cover for legal representation.
B. The contract was entered into before its inception date.
C. Jack had chosen to pay monthly premiums.
D. Jack had sought clarity of certain contract terms.
A
B
6
Q
Meg needed liability insurance to cover her consultancy business. She was recommended a standard policy which met her needs and incorporated standard industry exclusions. Which, if either, of the Consumer Rights Act 2015, or the Contracts (Rights of Third Parties) Act 1999 are likely to apply to Meg’s policy?
A. Both Consumer Rights and Rights of Third Parties.
B. Rights of Third Parties only.
C. Consumer Rights only.
D. Neither Consumer Rights nor Rights of Third Parties.
A
D
7
Q
Lija received her insurance policy documentation 14 days after the policy inception date. This was a breach of the Contract Certainty Code of Practice because Lija
A. had not used a broker to arrange her insurance policy.
B. had paid her premium before the policy incepted.
C. was a commercial customer.
D. was a consumer.
A
D
8
Q
Which two professions are required by statute to buy Professional Indemnity insurance?
A. Accountants and Advertising Agents.
B. Architects and Consulting Engineers.
C. Insurance Brokers and Solicitors.
D. IT Consultants and Surveyors.
A
C
9
Q
What is the consequence to an insurer when experiencing a soft market during the traditional underwriting cycle?
A. Falling expense ratios are likely to be in evidence.
B. Reinsurers’ minimum premium levels are likely to increase.
C. Reinsurance costs are likely to fall proportionately in line with premium income.
D. Rising expense ratios are likely to be in evidence.
A
D
10
Q
During a lengthy hard market phase, what is an underwriter most likely to experience when considering the ongoing relationship of cover provided to premium income?
A. Both premium income and cover levels reducing in equal proportions.
B. Demand to reduce premiums whilst maintaining existing cover levels.
C. The ability to achieve higher profits due to obtaining higher premium income levels for the same level of cover.
D. The need to increase investment to maintain its competitive position at existing premium and cover levels.
A
C
11
Q
An underwriter has received two applications for business interruption insurance. Firm X indicates greater availability of alternative suppliers than firm Y, whilst firm X has provided far less detail regarding maintenance of its machinery than firm Y. What is the underwriter most likely to conclude when considering moral and physical hazard?
A. Firm X represents a greater moral hazard than firm Y, but a lesser physical hazard.
B. Firm X represents a lesser post-loss moral hazard than firm Y, but a greater physical hazard.
C. Firm Y represents a greater pre-inception risk than firm X, but a lesser post-inception risk.
D. Firm Y represents a lesser physical hazard than firm X, but a greater post-loss risk
A
A
12
Q
An insured provided all required information satisfactorily and promptly at application stage, but has subsequently delayed the production of updated reports and requested postponements to site inspection visits. With regard to physical and moral hazard, what would this indicate to the underwriter?
A. Pre-inception and post-inception moral hazards.
B. Pre-inception physical and post-inception moral hazards.
C. Post-inception moral and physical hazards only.
D. Post-inception moral and physical hazards plus potential post-loss moral hazard.
A
D
13
Q
Rob’s insurance policy includes a clause allowing him to cancel the policy during the term and be allowed a premium rebate in certain circumstances. It is therefore likely that this condition
A. allows reinstatement within a stated timescale.
B. also allows cancellation by the insurer.
C. reflects non-standard industry practice.
D. reflects the underwriter’s specific moral hazard concerns.
A
B
14
Q
What should an insurance broker be aware of when considering becoming a Managing General Agent?
A. It will effectively hold the underwriting pen of the insurer.
B. It will have additional responsibilities to the regulator.
C. It will have the financial responsibility of funding claims.
D. It will not be permitted to carry out marketing of insurance products.
A
A
15
Q
Why would an underwriter typically have delegated authority to a specialist coverholder?
A. To access more customers with a lower distribution cost.
B. To comply with Financial Conduct Authority regulations.
C. To maximise profitability and reduce reinsurance costs.
D. To reduce its commission rates paid to intermediaries.
A
A
16
Q
What is the most likely channel a large manufacturer of sweets will use in order to buy its property and liability insurances?
A. Direct with an insurer.
B. Via a managing general agent only.
C. Via an aggregrator site.
D. Via an intermediary.
A
D
17
Q
With regard to the rise in illegal intermediaries, what is the usual role of the Insurance Fraud Enforcement Department?
A. To identify altered client information and invalid policy documents.
B. To prove links between clients applying for large sums insured quickly followed by a claim.
C. To recognise multiple claims in the names of bogus policyholders.
D. To trace the progress of high value claim payments through money laundering processes.
A
A
18
Q
A large UK insurer aims to expand into an overseas territory. When considering the most appropriate route to achieve this, the insurer will focus primarily on exposure to what types of risk?
A. Cultural and financial only.
B. Cultural and political only.
C. Cultural, financial and political.
D. Financial and political only.
A
C
19
Q
In order to combat the issue of professional enablers, what must insurers find ways to identify?
A. Claims such as those where criminal gangs have deliberately caused vehicles to crash.
B. Individuals or groups who continue to progress claims known to be fraudulent.
C. Policies specifically taken out for money laundering purposes.
D. Policyholders who have deliberately failed to disclose previous claims.
A
B
20
Q
A set of data comprises the following values: 3, 5, 10, 14, 22, 25, 28, 35 and 42. What can be deduced from this data?
A. The mean is 21.
B. The median is 22.
C. The median and mean have the same value.
D. The mode will be the midpoint of the median and mean.
A
B
21
Q
Between one and five claims are expected to arise next year, with respective probabilities of 0.1, 0.1, 0.3, 0.2 and 0.3. For data comparison purposes, what is the expected number of claims?
A. 3.3
B. 3.5
C. 3.7
D. 3.9
A
B
22
Q
An underwriter has determined its exposure for an identified household risk and the risk factors associated with it. In order to assess the risk over time, the underwriter
A. has a duty to compare the premium with similar risks in the market place.
B. has everything needed to cover the next five years.
C. must agree the conclusions with the potential policyholder.
D. must clearly define the claim events to be included in the policy.
A
D
23
Q
In what circumstances is the mode normally a more relevant measure of average than the median?
A. The data relates to monetary values rather than periods of time.
B. The middle value is an unfair representation of the full dataset.
C. More than three sets of data are being compared.
D. There is no obvious middle value.
A
B
24
Q
A list of insurance data comprises values of 10, 20, 20, 30, 40, 60 and 60. What can be deduced from this?
A. The arithmetic mean is half of the modal average.
B. The arithmetic mean is the same as the median average.
C. The median average is greater than 35.
D. The modal average is both 20 and 60.
A
D
25
The value of the premiums charged by a large retail insurer has been accurately plotted as a normal distribution curve. When interpreting this data, what indication should this give to the underwriter?
A. The higher the premium paid, the greater the level of profitability.
B. The lower the premium paid, the lower the average age of the policyholder.
C. The majority of policyholders are paying premiums which are close to the average.
D. The number of policyholders increases as the premium level decreases.
C
26
Over time, the standard deviation of claims in a specific insurance class has increased. What should this indicate to the underwriter?
A. The incidence of fraud is reducing.
B. The number of claims is reducing.
C. Profitability is increasing.
D. The volatility of claims experience is increasing.
D
27
When considering the probability of claims events, underwriter X is using the relative frequency method and underwriter Y the stochastic model. What does this indicate?
A. Underwriter X is assuming that historic data will be repeated and underwriter Y is relying on simulated scenarios.
B. Underwriter X is setting up a new class of business and underwriter Y is considering latent claims.
C. Underwriter Y’s claims are likely to be of greater frequency and lower value than underwriter X’s.
D. Underwriter Y’s data is more reliable than underwriter X’s and covers a longer historic period.
A
28
An underwriter is obliged to analyse claims experience based on a large number of claims, rather than a homogeneous database. This is most likely to produce results which are
A. aligned to the probability of future claims but which are not easily sub-divided.
B. both aligned to the probability of future claims and easily sub-divided.
C. less aligned to anticipated trends but more capable of indicating ongoing profitability.
D. more aligned to anticipated trends but less capable of indicating ongoing profitability.
A
29
A list of insurance data comprises values of 5, 10, 10, 20 and 30. What does this indicate?
A. The median average is 15.
B. The modal average is 20.
C. The median average is the same as the modal average.
D. The modal average is the same as the arithmetic mean.
C
30
Between one and six claims are expected to arise next year, with respective probabilities of 0.2, 0.3, 0.1, 0.3, 0.2 and 0.1. For data comparison purposes, what is the expected number of claims?
A. 3.3
B. 3.5
C. 3.7
D. 3.9
D
31
An underwriter is interpreting claims data for risks X and Y, where only risk Y has a long-tail exposure. What is the interpretation for risk Y likely to include?
A. Analysis of severity of loss, rather than frequency of loss figures.
B. A greater reliance of externally-produced statistics.
C. Less focus on homogeneous risks.
D. Past claims experience over a longer period.
D
32
A key function of an actuary within an insurance company is to
A. assist in risk pricing both at portfolio level and for large individual risks.
B. carry out on-site assessments for different classes of insurance.
C. collate data from the insurance industry in respect of bodily injury awards.
D. undertake competitor analysis with regard to price and service levels.
A
33
The importance of effective liaison between the underwriter and the claims department regarding claims backlogs primarily relates to the
A. application of appropriate inflationary factors.
B. most appropriate allocation of claims codings.
C. need to treat customers fairly.
D. ongoing viability of loss ratio data.
D
34
When compared to the burning cost method of premium calculation, the prospective risk analysis method
A. fails to allow for the re-evaluation of historic claims to current-day values.
B. has a greater potential to underestimate the value of future large claims.
C. makes greater use of claims triangulations to adjust for incomplete data.
D. more appropriately adjusts claims experience in line with current cover and risks
D
35
Underwriter X is required to seek a greater return on capital employed than underwriter Y. In comparison, what does this indicate about the risk class being considered by underwriter X?
A. It is more volatile than that of underwriter Y.
B. It is of a shorter term nature than that of underwriter Y.
C. It is subject to greater legislative requirements than that of underwriter Y.
D. It is subject to lower premium levels than that of underwriter Y.
A
36
Analysis of historical data regarding a motor fleet risk shows that the burning cost has continued to increase. What does this indicate?
A. The average number of annual claims has decreased but the average claim value has increased.
B. The fleet size has increased annually at a greater rate than the value of incurred claims.
C. The number of annual claims has increased but the total value has decreased.
D. The total level of incurred claims has increased in relation to the fleet size.
D
37
An underwriter’s assessment of incurred but not reported (IBNR) claims has most impact on the insurer’s ability to
A. establish the level of reserves required to meet ultimate claims values.
B. obtain appropriate reinsurance facilities for long-tail exposures.
C. recognise the potential impact of catastrophe losses.
D. set competitive premium levels for homogeneous risks.
A
38
Alan, Beth and Clive are an actuary, compliance manager and underwriting manager respectively. Who would be primarily responsible for a pricing adjustment following an analysis of competitors operating in the same market place?
A. Alan only.
B. Alan and Beth.
C. Clive only.
D. Clive and Beth.
C
39
When comparing the burning cost method of premium calculation with prospective risk analysis, the burning cost method
A. has a greater need to incorporate claims triangulation adjustments despite an overall more simplistic approach.
B. is more suited to the analysis of homogeneous data despite a general tendency to base calculations on incomplete years.
C. makes a more accurate allowance for changes in claims frequencies but disregards the impact of changes in claims types.
D. makes greater allowance for claims inflation but excludes general inflation.
A
40
An underwriter is analysing the value of both paid and outstanding claims against the premium related to the period of insurance which has already run. What is the underwriter calculating?
A. Claims triangulation.
B. Loss frequency.
C. Loss ratio.
D. Performance benchmark.
C
41
When considering claims projections, including incurred but not reported (IBNR) exposures, how may an actuary be primarily useful in assisting the underwriter?
A. By creating modelling solutions to assess the level of ongoing potential claims.
B. By identifying ways to improve the return on capital employed.
C. By negotiating appropriate reinsurance arrangements.
D. By using the actuary’s expertise to maximise the profitability of the claims portfolio.
A
42
What is the primary aim of an insurance provider having effective liaison between its underwriting and claims function regarding the allocation of claims codings?
A. To avoid the payment of claims which are outside the scope of the policy.
B. To enable the most appropriate reinsurance facilities to be obtained.
C. To ensure risks continue to be appropriately rated.
D. To establish the required level of ongoing reserves provision.
C
43
An underwriter is considering a risk in a geographical area classified as within acceptable criteria according to the CRESTA system. However, the underwriter has been obliged to decline the proposal due to the risk zoning guidelines of the insurer. What is this most likely to indicate?
A. Exposure in this location is already near maximum capacity.
B. The insurer already covers other risks for this proposer.
C. Reinsurance costs are too prohibitive.
D. This location has recently been subject to civil unrest.
A
44
An insurer has incurred aggregated risk under both its personal accident and travel insurance accounts across a defined geographical area. This situation can reasonably be illustrated by the occurrence of a
A. delay to return flights and lost luggage due to severe snow storms.
B. family’s involvement in a car accident whilst driving a hired car on holiday.
C. food poisoning outbreak at a resort hotel.
D. major flood in a popular tourist region.
D
45
Underwriter X is concerned about possible fluctuations in claims costs, whilst underwriter Y is looking to increase current capacity in order to accept larger or more unusual risks. Prudent action would be for underwriter X and underwriter Y to both
A. commission an expenses review.
B. purchase reinsurance.
C. seek guidance from the Claims and Underwriting Exchange.
D. switch to a risk aggregation policy.
B
46
Both insurer X and insurer Y have set the same financial limit up to which risks can be accepted in a particular class of business. However, insurer X regularly exceeds this limit. What is this most likely to indicate?
A. Insurer X focuses on larger risks whereas insurer Y focuses on more unusual risks.
B. Insurer X is expanding business in new overseas territories whereas insurer Y operates mainly in the EU.
C. Insurer X makes more effective use of reinsurance facilities whereas insurer Y declines cover.
D. insurer X regularly coinsures whereas insurer Y has a quota share reinsurance arrangement.
C
47
A reinsured retains the first £400,000 of each and every loss arising from a particular event and has purchased an excess of loss reinsurance treaty to cover the next £800,000. In the event of a claim for £600,000, what is the respective liability of the reinsured and the reinsurer?
A. Nil and £600,000.
B. £200,000 and £400,000.
C. £400,000 and £200,000.
D. £600,000 and Nil.
C
48
Underwriter X’s insurance needs are typically met by facultative reinsurance whereas underwriter Y typically uses treaty reinsurance. This indicates that, compared to underwriter X, underwriter Y is most likely to
A. experience more pressure from the reinsurer to improve the risk.
B. incur more labour-intensive administrative issues.
C. lose more potential profit under its accounts.
D. reduce the need to arrange individual reinsurance contracts.
D
49
In a period where new reinsurers have started to enter the market, the interaction between insurers and reinsurers can typically be said to reflect
A. increasing reinsurance prices and negotiating power in favour of the reinsurer.
B. increasing reinsurance prices and negotiating power swaying towards the insurer.
C. reducing reinsurance prices and negotiating power in favour of the reinsurer.
D. reducing reinsurance prices and negotiating power swaying towards the insurer.
D
50
An insurer has found that the cost of reinsuring its property account is prohibitive. What is the insurer most likely to consider as an alternative way of limiting its risk exposure?
A. Coinsurance.
B. Dual insurance.
C. First-loss insurance.
D. Self-insurance.
A
51
An authorised firm should carefully record the nature of all complaints:
a.
as the FCA might ask for complaints data.
b.
as this will identify any competence issues with staff.
c.
to identify any trends and systematic issues.
d.
to determine the quality of the firm's underwriting.
C
52
The PRA has asked an insurer NOT to double its premium income over the next five years as it regards this as being an unacceptable potential risk. This is an example of:
a.
dual-regulation.
b.
solvency-based regulation.
c.
forward-looking regulation.
d.
category 3 firm supervision.
C
53
Which UK financial services regulator is primarily responsible for enhancing confidence in the UK financial system and protecting consumers?
a.
The FCA.
b.
The Bank of England.
c.
The FPC.
d.
The PRA.
A
54
If a policyholder has an outstanding buildings insurance claim of £20,000 when their insurer becomes insolvent, what is the maximum compensation payable under the Financial Services Compensation Scheme?
a.
£20,000.
b.
£16,000.
c.
£18,000.
d.
£15,000.
C
55
Risk-based supervision can best be described as how a regulator will:
a.
provide different levels of supervision based on the solvency of a firm.
b.
focus primarily on identifying future potential risks.
c.
focus their supervision on firms which pose the most risk to their objectives.
d.
treat all firms the same way.
C
56
How often, if at all, can a high street firm of insurance brokers expect to have contact with the regulator as part of a programme of ongoing supervision?
a.
Every four years.
b.
Not at all.
c.
Every year.
d.
Every two years.
A
57
What type of financial services firm would be dual-regulated?
a.
A large UK insurance broker.
b.
A high street broker.
c.
A Lloyd's broker.
d.
A major UK insurer.
D
58
In an effort to minimise losses, an insurer has instructed its underwriters to include exclusions in its policies that are not standard practice within the industry. Which of the FCA's six consumer outcomes is this action most likely to breach?
a.
Outcome 4: Where consumers receive advice, the advice is suitable and takes account of their circumstances.
b.
Outcome 6: Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.
c.
Outcome 1: Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture.
d.
Outcome 3: Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.
C
59
A local high-street insurance broker is likely to be regulated by the:
a.
FCA and PRA.
b.
PRA only.
c.
PRA and FPC.
d.
FCA only.
D
60
The Insurance: Conduct of Business Sourcebook:
a.
forms part of the FCA Handbook.
b.
forms part of the PRA Rulebook.
c.
applies only to insurance brokers.
d.
applies only to insurers.
A
61
Contract certainty within the UK insurance industry is governed by the Contract Certainty Code of Practice. Which body is responsible for this?
a.
The Lloyd's Market.
b.
The FCA.
c.
The London Market Group.
d.
The CII.
C
62
For underwriters, what is a key benefit of contract certainty?
a.
It makes their exposure clear and allows for accurate reserving.
b.
It makes customers more likely to buy insurance products which ultimately improves profitability.
c.
It makes it easier to arrange insurance as all the details can be finalised once the cover is in force.
d.
It generally increases the premiums payable.
A
63
In underwriting, what is a soft market typically the result of?
a.
A reduction in market capacity due to fewer competitors.
b.
Increased market capacity due to less investment by existing insurers.
c.
Increased market capacity due to more entrants to the market and more investment by existing insurers.
d.
A reduction in market capacity due to lower margins.
C
64
What is the most profound change introduced by the Consumer Insurance [Disclosure and Representations] Act 2012?
a.
It introduced a 'caveat emptor' for commercial clients buying insurance.
b.
It introduced a 'caveat emptor' for consumers buying insurance.
c.
Underwriters need to ask specific questions rather than rely on consumers to volunteer information.
d.
It applied the disclosure rules for consumers to commercial policies as well.
C
65
A commercial client is applying for an insurance contract. How, if at all, does the Insurance Act 2015 impact on the application?
a.
The policy would be covered by the Consumer Insurance [Disclosure and Representations] Act 2012 and the client has a duty of fair presentation when applying.
b.
The policy would be covered by the Consumer Insurance [Disclosure and Representations] Act 2012 and the client has a duty to provide the information requested by the insurer and does not need to go beyond this.
c.
The client has a duty of fair presentation of the risk when applying.
d.
The client has a duty to provide the information requested by the insurer but does not need to go beyond this.
C
66
What did the Civil Liability Convention 1969 introduce?
a.
It set up a central register so that employer liability claims could be attributed to the insurer at risk at the time of the claim.
b.
It imposed strict liability on ship owners without the need to prove negligence.
c.
It introduced legislation to limit liability for the radioactive contamination of land.
d.
It introduced legislation to avoid future industrial explosions.
B
67
The riskier the class of business written, typically the:
a.
greater the volatility of the capital requirements.
b.
lower the reserves required.
c.
greater the need for capital.
d.
lower the return on the premium needed.
C
68
Which external influence is LEAST likely to impact on an insurer's underwriting strategy?
a.
Political influences.
b.
Weather-related events.
c.
Economic trends.
d.
General market claims experience.
D
69
When looking at the Solvency II minimum capital requirements [MCR], all:
a.
UK-regulated insurers must have capital which must exceed their MCR by 20%.
b.
European and UK insurers are effectively subject to the same requirements.
c.
European insurers are subject to more vigorous requirements than UK insurers.
d.
UK-regulated insurers must have capital which must exceed their MCR by 30%.
B
70
In a ‘hard market’, what action will a prudent insurer take?
a.
Harden their underwriting terms and charge more for risks.
b.
Increase their expense ratios and broaden the policy cover offered.
c.
Reduce their reserves to release cash to expand their market.
d.
Build up reserves to protect against a decline in markets at some point.
D
71
An insurer offers a complex commercial product with some unique features. Which type of distribution strategy would be most suitable?
a.
The direct channel.
b.
Direct marketing.
c.
The intermediary channel.
d.
Aggregators.
C
72
Which part of the insurance contract details the type of event insured against?
a.
The operative clause.
b.
The schedule.
c.
The conditions clause.
d.
The exemptions clause.
A
73
A UK-based insurer expanding overseas is most likely to benefit as a result of:
a.
covering a wider range of insurance risks.
b.
taking advantage of different economic opportunities.
c.
reducing their costs.
d.
minimising political risk by operating in different markets.
B
74
If a broker has delegated underwriting authority for a class of business, it acts as:
a.
a managing general agent.
b.
the binding authority.
c.
a coverholder.
d.
the risk carrier.
C
75
When a long time policyholder made their first claim on their insurance, they added a little extra to the amount to re-decorate a room unaffected by the claim. This would be described by the insurance industry as:
a.
opportunistic fraud.
b.
embellishment.
c.
premeditated theft.
d.
theft.
A
76
An overseas insurer decides to buy a UK insurer to enter the UK insurance market with a relatively small book of business. It offers insurance products that are priced very competitively. What impact is this strategy most likely to have?
a.
Reduce competition and increase prices.
b.
Expand general demand within the UK market for insurance products.
c.
Develop a quick market share with a significant initial profit margin.
d.
Generate sales at a loss which could destabilise the existing market.
D
77
What type of intermediary is LEAST likely to be regarded as a potential professional enabler within organised insurance fraud?
a.
Solicitors.
b.
Surveyors.
c.
Aggregators.
d.
Accident management companies.
C
78
What is the benefit to insurers of categorising different types of risk for underwriting purposes?
a.
Underwriting processes for each category can be harmonised.
b.
It makes it easier to analyse and rate the risk.
c.
It makes reporting easier.
d.
It makes it easier to identify the profit of each class.
B
79
When underwriting motor insurance, what type of physical hazard is most likely to impact on the premium charged by the insurer?
a.
The experience and age of the driver.
b.
The occupation of the driver.
c.
Where the car is housed overnight.
d.
Whether the car usage includes commuting or is restricted to just social and domestic use.
A
80
High-level business objectives need to be incorporated into the underwriting strategy through business plans. This is likely to be broken down into the following key elements, EXCLUDING:
a.
claims and expense ratios.
b.
expected investment returns.
c.
premium targets.
d.
anticipated levels of profit.
D
81
Based on the historical data of a motor account, the probability of it having a specified number of claims in the next year are: one claim [0.53]; two claims [0.28]; three claims [0.18]; four claims or more [0.01]. What is the total number of claims expected to arise in the coming year?
a.
1.67.
b.
1.00.
c.
1.09.
d.
1.63.
A
82
Premiums in insurance are based on frequency and severity. What type of risk is the most unpredictable?
a.
High severity/high frequency.
b.
Low severity/low frequency.
c.
Low severity/high frequency.
d.
High severity/low frequency.
D
83
When reviewing the claims experience data for four different classes of business, the probability of a loss event is: private motor 0.7, buildings insurance 0.55, motor traders 0.6, and pet insurance 0.45. Based on this, which class is most likely to have a claim?
a.
Pet insurance.
b.
Motor traders.
c.
Private motor.
d.
Buildings insurance.
C
84
What does a poisson distribution measure?
a.
The deviation of the data from the mean.
b.
The frequency at which a value occurs.
c.
The probability of a certain number of events occurring within a given time frame.
d.
The frequency and severity of claims data.
C
85
A house has an market value of £215,000 and a rebuilding cost of £240,000. The insurer uses the rebuild value as its exposure measure and uses a rate of 0.28% per pound of sum insured to determine the base premium. What base premium will the insurer charge?
a.
£602.
b.
£672.
c.
£624.
d.
£559.
B
86
Why might it be unwise for an underwriter to look solely at the historical claims record for private motor claims?
a.
Claim ratios were historically much higher than current rates.
b.
New types of claims may arise in the future.
c.
The data is not homogeneous enough to be reliable.
d.
Claim ratios were historically much lower than current rates.
B
87
When assessing the standard deviation of claims, a low standard deviation typically suggests that:
a.
profitability is decreasing.
b.
the claim experience is fairly volatile.
c.
profitability is increasing.
d.
the claim experience is fairly stable.
D
88
A set of data includes the following values: 0, 1, 4, 5, 8, 9, 14, 14, and 21. This shows that the:
a.
mode is 14.
b.
median is 9.
c.
median is 8.44.
d.
mean is 8.
A
89
In this method of establishing probabilities, the underwriter describes the risk of loss in terms of probable, neutral, or improbable, and then allocates a value to these. This method is based on:
a.
relative frequency.
b.
natural probabilities.
c.
subjective probabilities.
d.
stochastic modelling.
C
90
An insurer has the following data relating to five settled claims on home insurance claims: £350, £850, £4,500, £500 and £4,500. What is the median?
a.
£2,140.
b.
£4,500.
c.
£350.
d.
£850.
D
91
An insurer that only operates in the UK is LEAST likely to take what into account when setting premium rates?
a.
Reserving policy.
b.
Exchange rates.
c.
Inflation.
d.
Changes in cover or limits.
B
92
An established UK insurer has a strategy to aggressively grow its client base. In a soft market, what action is it most likely to take?
a.
Lower its premiums to maintain and continue to grow its market share.
b.
Maintain its pricing policy but increase expenditure on marketing.
c.
Focus on retaining its best clients until the position improves.
d.
Pull out of the market and return only when profitability returns.
A
93
In establishing the risk premium for an employers' liability insurance, an underwriter will look at the profile of staff duties primarily because this will impact on the:
a.
return on capital employed.
b.
long tail claims experience.
c.
frequency and severity of claims.
d.
profitability of the business.
C
94
When an underwriter needs to analyse historical claims data in an effort to forecast future losses, they need to establish the credibility of the data. They should be aware that:
a.
it is acceptable to have significant variations in the types of risks if the quantity of data is large enough.
b.
the sample needs to be large enough and homogeneous.
c.
it is not necessary for claims estimates to be reviewed.
d.
the claims experience will rarely be longer than three years.
B
95
The insured injured their passenger in an ‘at fault’ road traffic accident and the insurer makes an initial reserve of £10,000. After several months and further medical reports, the final claim amounts to £25,000. This is an example of a claim which is:
a.
incurred but under reserved.
b.
incurred but not enough reserved.
c.
incurred but not reserved.
d.
incurred but insufficient reserved.
B
96
When considering flood risk in England and Wales:
a.
the definition of flood risk is usually restricted to river flooding only.
b.
the frequency of this type of risk is not expected to significantly increase in the future.
c.
it is up to individual insurers to collect their own information on the risks of flooding.
d.
underwriters classify flood risks as significant, moderate or low based on data from the Environment Agency.
D
97
All other factors being equal, which property will represent the highest risk to an underwriter?
a.
A property located in a city, with new standard build construction, which is unoccupied for prolonged periods.
b.
A property located in a rural location which is unoccupied for prolonged periods.
c.
A property located in a rural location, situated near to a watercourse with new standard build construction.
d.
A property located in a city, situated near to a watercourse which is unoccupied for prolonged periods.
D
98
With a large commercial risk, actuaries are most likely to support underwriters by:
a.
reviewing the quality of the claims experience.
b.
making claims projections using forecasting models.
c.
ensuring that Solvency II requirements are met.
d.
analysing potential competitors in the marketplace.
B
99
What class of insurance is most likely to be rated using the burning cost method?
a.
Classic motor insurance risks.
b.
Motor fleet risks.
c.
Bespoke commercial risks.
d.
Private motor risks.
B
100
Within an insurance company, in what area are the underwriting and claims functions LEAST likely to work together?
a.
Policy wordings.
b.
Fraud.
c.
Product development.
d.
Emerging trends.
C
101
With liability insurance, despite taking steps to identify and control the potential aggregation risk of several insureds being involved in one event, what other action is an insurer most likely to take to protect themselves?
a.
Include a loading in the premium to cover this.
b.
Take out clash reinsurance.
c.
Set aside additional reserves.
d.
Restrict the limit of liability on policies to restrict the loss.
B
102
Under a reinsurance arrangement, the insurer agrees to pay the first £200,000 of losses arising and the reinsurer agrees to pay the balance of any loss up to £700,000 on an individual risk. What type of reinsurance arrangement is this?
a.
Excess of loss reinsurance.
b.
Proportional reinsurance.
c.
Stop-loss insurance.
d.
Treaty insurance.
A
103
When assessing aggregation risk in the UK for different classes of business, what is LEAST likely to be a potential issue?
a.
Two or more policies covering the same catastrophic loss exposure, e.g. terrorism.
b.
Multiple domestic dwellings damaged as a result of a widespread storm.
c.
Multi-vehicle accidents and severe injuries to people, e.g. a motorway pile-up.
d.
Multiple insureds affected by a catastrophe loss caused by earthquake.
D
104
Insurers face the uncertainty of risk. This is primarily due to:
a.
the frequency and severity of potential losses.
b.
the timing of potential losses.
c.
only the severity of potential losses.
d.
only the frequency of potential losses.
A
105
What is a key disadvantage for an insurer that arranges reinsurance on a treaty basis?
a.
The insurer, as the ceding company, has to disclose full information regarding the original underwriting terms and conditions of each risk.
b.
The reinsurer may exercise influence over the insurer's underwriting and premium policy.
c.
There are significant administration costs compared to facultative insurance arrangements.
d.
There is typically no ability to cancel the contract mid-term.
D
106
When arranging their insurance, the insured agrees to cover the first £100,000 of any potential loss with the insurer covering the balance up to the actual claim value. What is this type of insurance known as?
a.
Self-insurance.
b.
Co-insurance.
c.
Reinsurance pool.
d.
Stop-loss reinsurance.
B
107
A characteristic of a soft reinsurance market is that:
a.
reinsurers will generally be more able to demand higher retention levels from insurers.
b.
it generally results after a period of declining premium rates.
c.
it will generally follow a period when there have been a series of significant market losses.
d.
insurers gain more 'bargaining power' over reinsurers.
D
108
The maximum capacity that an insurer will accept for a single risk is based on their:
a.
pricing policy and capital position.
b.
pricing policy and claims record.
c.
costs of reinsurance only.
d.
capital position and costs of reinsurance.
D
109
Why is it important for an underwriter to assess their exposure to aggregation risk?
a.
Research predicts an important but declining impact of future man-made disasters.
b.
Research expects the occurrence of both man-made and natural disasters to occur more frequently in the future.
c.
Historically, the occurrence of both man-made and natural disasters has heavily impacted on current insurance premiums.
d.
Research predicts an important but declining impact of future natural disasters.
B
110
When is an insurer most likely to arrange facultative insurance?
a.
To cover frequently occurring risks such as private motor insurance.
b.
To reduce the costs associated with reinsurance.
c.
To cover terrorism risks on a commercial property.
d.
To automatically cover substantial risks.
C
111
Which Act Regulated the term 'insurance broker?'
a. Legislative Reform (Lloyd’s) Order 2008
b. Insurance Brokers (Registration) Act 1977
c. Insurance Act 2015
d. Marine Insurance Act 1906
b. Insurance Brokers (Registration) Act 1977
112
The PRA has adopted a:
a. Judgement-based approach
b. Risk-based approach
c. Strategic-based approach
d. Rules-based approach
a. Judgement-based approach
113
The Financial Policy Committee watches for which type of risks?
a. Strategic
b. Systemic
c. Solitary
d. Safety
b. Systemic
114
Which of the following does not relate to the FCA’s operational objectives?
a. Consumer protection
b. Integrity
c. Adverse effect
d. Competition
c. Adverse effect
115
Which of the following is not one of the pillars that the FCA uses to analyse business
conduct risks?
a. Proactive Firm Supervision
b. Event driven work
c. Operational risk framework
d. Issues and products
c. Operational risk framework
116
The FCA has adopted a:
a. Focus-based approach
b. Risk-based approach
c. Strategic-based approach
d. Rules-based approach
b. Risk-based approach
117
Which regulatory sourcebook deals specifically with complaints?
a. ICOBS
b. CASS
c. DISP
d. TC
c. DISP
118
How long does a claimant have to refer their complaint to the FOS from the final decision of the firm?
a. Eight weeks
b. Six weeks
c. Eight months
d. Six months
d. Six months
119
The FSCS levy provides 100% protection for which of the following?
a. Compulsory insurance
b. Professional indemnity insurance
c. Long-term insurance
d. All of the above
d. All of the above
120
Which type of capital is used for the acquisition and running costs of an organisation?
a. Solvency capital
b. Surplus capital
c. Working capital
d. Warranty capital
c. Working capital
121
Under contract certainty rules, timescales for issuing documentation are measured from the latest of:
a. The inception date of the contract
b. The date on which the insured and insurer enter into the contract
c. Where there is more than one participating insurer, the date on which the final insurer enters into the contract
d. Any of the above
d. Any of the above
122
Which of the following Acts deals with unfair terms within insurance contracts?
a. Contracts (Rights Against Third Parties) Act 1999
b. Consumer Insurance (Disclosure and Representations) Act 2012 (CIDRA)
c. Consumer Rights Act 2015
d. Third Parties (Rights Against Insurers) Act 2010
c. Consumer Rights Act 2015
123
Which Act modifies the doctrine of privity of contract?
a. Insurance Act 2015
b. Consumer Insurance (Disclosure and Representations) Act 2012
c. Contracts (Rights of Third Parties) Act 1999
d. Consumer Rights Act 2015
c. Contracts (Rights of Third Parties) Act 1999
124
Under the GDPR, an IP address is considered as:
a. Sensitive personal data
b. Generic data
c. Personal data
d. All of the above
c. Personal data
125
Under the Consumer Rights Act 2015, a term must be:
a. Transparent
b. Prominent
c. In plain and intelligible language
d. All of the above
d. All of the above
126
The Motor Insurers’ Bureau (MIB) performs its function in relation to which drivers?
a. Untraced and uninsured drivers
b. Unregistered and reckless drivers
c. Unspecified and unlicensed drivers
d. Dangerous drivers and drunk drivers
a. Untraced and uninsured drivers
127
What is the duty under the Consumer Insurance (Disclosure and Representations) Act 2012?
a. Duty to make a fair presentation of the risk
b. Duty to disclose any facts that a prudent underwriter would consider material
c. Duty to take reasonable care not to make a misrepresentation
d. Duty to disclose all facts
c. Duty to take reasonable care not to make a misrepresentation
128
Which European ruling forbid insurers from using gender when rating risks?
a. Humblot
b. Cassis de Dijon
c. Test-Achats
d. Bosman
c. Test-Achats
129
You are discriminated against because your best friend has a ‘protected characteristic’, this is known as:
a. Direct discrimination
b. Indirect discrimination
c. Associative discrimination
d. Perceptive discrimination
c. Associative discrimination
130
Which of the following is not a moral hazard?
a. Age of a driver
b. Carelessness
c. Dishonesty
d. Social attitude
a. Age of a driver
131
Which of the following sets out the type of event insured against?
a. The signature clause
b. The heading
c. The preamble
d. The operative clause
d. The operative clause
132
If a franchise is set at £800 and a claim for £850 is notified, insurers will pay:
a. Nil
b. £50
c. £800
d. £850
d. £850
133
If an insured would like a premium discount, it is likely they will agree to pay a:
a. Compulsory excess
b. Deductible
c. Voluntary excess
d. Franchise
c. Voluntary excess
134
Which of the following will not be a risk classification for property business?
a. Turnover
b. Occupation of building
c. Age of building
d. Materials of construction
a. Turnover
135
Which of the following is not part of the marketing mix?
a. Premium
b. Product
c. Promotion
d. Place
a. Premium
136
A delegated authority partner is known as:
a. The delegate
b. The co-partner
c. The managing agent
d. The coverholder
d. The coverholder
137
An MGA is best described as:
a. An insurance broking firm
b. A wholesaler of insurance products
c. An organisation backed by insurance carriers
d. None of the above
c. An organisation backed by insurance carriers
138
Which of the following is a way fraud can be committed under the Fraud Act 2006?
a. False representation
b. Failing to disclose information
c. Abuse of position
d. All of the above
d. All of the above
139
Which of the following will contain the details of total losses?
a. Motor Insurance Anti-Fraud and Theft Register (MIAFTR2)
b. Motor Insurance Database (MID)
c. Claims and Underwriting Exchange (CUE)
d. Art Loss Register
a. Motor Insurance Anti-Fraud and Theft Register (MIAFTR2)
140
Which of the following can change the base premium to a risk-adjusted premium?
a. Rating factors
b. External factors
c. Risk-based factors
d. Economy factors
a. Rating factors
141
Which of the following is the most suitable measure when data is dominated by outliers?
a. Mean
b. Mode
c. Median
d. None of the above
b. Mode
142
Which of the following datasets could use ‘mode’ as a statistical tool?
a. 2 5 7 9 3
b. 2 4 3 1 7
c. 9 4 1 4 4
d. 5 4 3 6 1
c. 9 4 1 4 4
143
Which of the following is a measure of the spread of data?
a. Variance
b. Range
c. Median
d. Minimum and maximum values within a set
a. Variance
144
High standard deviation happens when there are:
a. Minimal outliers
b. Extreme outliers
c. Clusters around the mean
d. None of the above
b. Extreme outliers
145
Which of the following expresses the probability of a certain number of events occurring within a given time frame?
a. Normal distribution
b. Average distribution
c. Poisson distribution
d. Standard distribution
c. Poisson distribution
146
Which of the following demonstrates something that is most likely to happen?
a. 0.75
b. 78/100
c. 0.079
d. 79%
d. 79%
147
Which of the following is used for the calculation of probabilities?
a. Relative frequencies
b. Relative severities
c. Moderate frequencies
d. Moderate severities
a. Relative frequencies
148
Which of the following is typically used for predicting less frequent and complex events?
a. A statistical model
b. A standard model
c. A sophisticated model
d. A stochastic model
d. A stochastic model
149
Which claims are typically more complex to predict the outcome for?
a. Long-tail claims
b. Latent claims
c. Liability claims
d. All of the above
d. All of the above
150
Which of the following is not a main element of premium?
a. Profit
b. Expenses
c. Risk premium
d. Value
d. Value
151
Wage roll may be used as a measure of exposure for which type of insurance?
a. Household insurance
b. Commercial property
c. Fleet insurance
d. Employers’ liability
d. Employers’ liability
152
Which of the following is not likely to incur a ‘loading’?
a. New standard build
b. Thatch roof
c. Poor general housekeeping
d. Close to watercourse
a. New standard build
153
Facultative reinsurance is likely to be described as:
a. A fixed cost
b. A variable cost
c. A standard cost
d. A proportionate cost
b. A variable cost
154
A motor insurer would have to factor which of the following levies and taxes into its premium?
a. Financial Services Compensation Scheme (FSCS)
b. Motor Insurers’ Bureau (MIB)
c. Insurance Premium Tax (IPT)
d. All of the above
d. All of the above
155
Adjustable premiums are confirmed:
a. During the policy period
b. At inception of the policy
c. In the next policy year
d. At expiry of the policy
d. At expiry of the policy
156
The amount of premium used to pay losses over a long period of time is called:
a. Risk premium
b. Risk triangulation
c. Burning cost
d. Burning premium
c. Burning cost
157
If in 2018, a wage roll is £1,000,000 and incurred claims are £20,000, what is the burning cost for this year of account?
a. 0.02%
b. 2%
c. 0.05%
d. 5%
b. 2%
158
Which type of risks assist insurers with data credibility?
a. Homogenous risks
b. High severity risks
c. Heterogeneity risks
d. Low severity risks
a. Homogenous risks
159
Which of the following options can an insurer utilise to deal with competition?
a. Pull out of the market
b. Maintain its current strategy
c. Lower prices to compete
d. Any of the above
d. Any of the above
160
EML is used to assess risk accumulation for:
a. Single events
b. Single risks
c. Single losses
d. Single properties
b. Single risks
161
Which of the following is not a reason why insurers buy reinsurance?
a. Maintains financial stability
b. Protects against catastrophes
c. Ability for anti-selection against the reinsurer
d. Provides capacity
c. Ability for anti-selection against the reinsurer
162
The insurer who buys reinsurance cover is called the
a. Retrocedant
b. Retrocessionaire
c. Cedant
d. Reinsurer
c. Cedant
163
Which of the following generally has the potential to be the most expensive form of reinsurance?
a. Facultative obligatory
b. Facultative
c. Treaty
d. Proportional
b. Facultative
164
Which of the following types of reinsurance is associated with the insurer’s loss ratio?
a. Quota share
b. Surplus
c. Stop loss
d. Excess of loss
c. Stop loss
165
Which of the following types of reinsurance is associated with the insurer’s loss ratio?
a. Quota share
b. Surplus
c. Stop loss
d. Excess of loss
c. Stop loss
166
A reinsurer agrees to take a percentage representing a quarter of all risks, this will be called:
a. 75% quota share
b. Quarter quota share
c. 25% quota share
d. Quad quota share
c. 25% quota share
167
In surplus lines reinsurance, each line will be:
a. Equal to the insurer’s percentage
b. A multiplier of the insurer’s original line
c. In excess of the maximum retention line
d. Disproportionate to the original line
b. A multiplier of the insurer’s original line
168
Which of the following is likely to be requested by a reinsurer?
a. Portfolio analysis
b. Geographical scope of risks
c. Claims experiences
d. All of the above
d. All of the above
169
Which of the following resulted in a reinsurance pool arrangement being developed?
a. Terrorism Act 2000
b. Energy Act 2014
c. Water Act 2014
d. None of the above
c. Water Act 2014
170
Which of the following is more likely to use first loss insurance?
a. Property
b. Liability
c. Motor
d. Marine
a. Property
171
In a soft market, insurance companies experience
increased premium income and a decrease in exposures.
increased premium income and an increase in exposures
reduced premium income and a decrease in exposures.
reduced premium income and an increase in exposures
reduced premium income and an increase in exposures
172
Which body is responsible for monitoring emerging risks to the UK financial system and providing strategic direction for the regulatory regime?
Financial Conduct Authority
Financial Policy Committee.
HM Treasury.
Prudential Regulation Authority
Financial Policy Committee.
173
The fair treatment of customers is a major theme of the Financial Conduct Authority and the guidance to what this means is contained in which key Principle?
Principle two.
Principle four
Principle six.
Principle eight.
Principle six.
174
When considering an insurance company’s solvency requirements, under the 2005 rules, its capital resources requirement is the higher of its
base capital requirement and its general insurance capital requirement.
general insurance capital requirement and its enhanced capital requirement.
minimum capital requirement and its base capital requirement.
minimum capital requirement and its enhanced capital requirement.
minimum capital requirement and its enhanced capital requirement.
175
To achieve contract certainty, documentation be received by commercial customers within how many calendar days after the inception of the contract?
7 days.
14 days.
28 days
30 days.
30 days.
176
Under data protection legislation, an insurance underwriter must ensure that information held about a customer is
accurate and relevant only.
accurate and disclosed only to those authorised to have it only.
relevant and disclosed only to those authorised to have it only.
accurate, relevant and disclosed only to those authorised to have it
accurate, relevant and disclosed only to those authorised to have it
177
A consumer made a misrepresentation when applying for an insurance policy, the insurer has discovered this at the time of a claim, but has decided to pay the claim in full. Which type of misrepresentation is most likely to have taken place?
Careless
Deliberate.
Fraudulent.
Reasonable.
Reasonable.
178
In the underwriting cycle, an insurer has experienced a period of increased competition which has given rise to lower premiums. What is the most likely immediate impact to the insurer?
Lower capacity.
Lower profits
Higher capacity.
Higher profits
Lower profits
179
Insurers provide the Employers’ Liability Tracing Office (ELTO) with policy information within what period following the inception of a policy?
7 days
30 days.
60 days.
90 days
90 days
180
Which body has responsibility for the conduct of the Society of Lloyd’s?
Financial Conduct Authority.
Financial Policy Committee.
HM Treasury.
Prudential Regulation Authority.
Financial Conduct Authority.
181
What are the forms of moral hazard?
Pre-inception and post-inception only.
Pre-inception and post-loss only
Post-inception and post-loss only
Pre and post-inception and post-loss.
Pre and post-inception and post-loss.
182
Within an insurance policy, which section details the type of event insured?
Conditions clause.
Exemptions clause.
Operative clause
Schedule.
Operative clause
183
In the UK, what are Standard Industrial Classification codes mainly used for?
Compiling health and safety statistics
Determining financial adequacy requirements
Establishing claims reserves in line with regulatory requirements
. Undertaking reinsurance and coinsurance negotiations
Compiling health and safety statistics
184
Which term is used to describe a situation where an insurance product becomes less differentiated, so that buyers care less about who they buy it from?
Commoditisation
Correlation.
Disintermediation.
Intermediation
Commoditisation
185
Under a delegated authority, the frequency for a bordereaux to be submitted to insurers is
daily.
weekly.
monthly.
every three months.
monthly.
186
What are the risks facing an insurer when writing international business?
Financial and political only.
Financial and cultural only.
Political and cultural only.
Financial, political and cultural.
Financial, political and cultural.
187
Which type of crime could be committed by law-abiding citizens who consider it to be a victimless crime with little chance of detection?
Commercial liability fraud.
Data theft.
Opportunistic fraud.
Pre-meditated fraud.
Opportunistic fraud.
188
The need to rationalise two organisations' data consistently and report results using the same methodology is a feature of what activity in the insurance industry?
Commoditisation.
Consolidation.
De-centralisation.
Product innovation.
Consolidation
189
What is the principle way that an Insurer can consistently implement its corporate strategy and prevent internal tensions within the business?
Allow each division to develop its own corporate strategy and business targets in isolation
Monitor the success of its business targets on a bi-annual basis to allow time for performance trends and patterns to develop.
Regular communication of its corporate objectives to each key division of the business
Regular communication of its corporate objectives to each key division of the business
190
What is typically used to indicate an insurer’s underlying risk for its book of insurance?
Capital adequacy.
Exposure measure.
Key performance indicators.
Liquidity ratio.
Exposure measure.
191
Which type(s) of average should be used for measuring preferences?
Mode only
Median only.
Mean only.
Mode or median.
Mode only
192
Which type(s) of average can most commonly be distorted as a result of outliers in the data set?
Mode only
Median only.
Mean and median
Mode and median.
Mean and median
193
In terms of frequency and severity, an Insured suffering a long-term debilitating personal injury as a result of a motor accident is and example of what type of event?
Low frequency, low severity.
Low frequency, high severity.
High frequency, low severity.
High frequency, high severity.
Low frequency, high severity.
194
A data set comprises the following values: 1, 4, 4, 6, 6, 8, 9, 10. When analysing these values, what can be deduced?
The mean is 6.
The median will be higher than 6.
The mode is 10.
The mode will be higher than the median.
The mean is 6.
195
The calculation used in a data set to reveal how far the data varies around the mean is known as the
correlation value
covariance value
frequency measure
standard deviation
standard deviation
196
An insurance underwriter is able to calculate the expected value of claims by combining
frequency and severity only.
frequency with their associated probability only
severity with their associated probability only.
frequency and severity with associated probability.
frequency and severity with associated probability.
197
Which technique, employed by insurance underwriters, involves generating a large number of statistically-simulated scenarios of claim frequencies, claim amounts and the timing of future claims?
Relative frequency analysis.
Standard deviation modelling
Stochastic modelling.
Subjective probability analysis.
Stochastic modelling.
198
What does an insurer charge that specifically reflects the risk that a customer brings to the insurer’s pool?
Equitable premium
Franchise
Policy excess.
Policy levy.
Equitable premium
199
What should an insurance underwriter do to avoid the unreliability of past data when considering future claims analysis?
Assume an uplift in figures to allow for inflation.
Make an allowance for claims reductions in all circumstances.
Use competitor analysis tools.
Use sound judgement based on experience
Use sound judgement based on experience
200
What action would an insurer take to quickly grow a portfolio of business in the household insurance market?
Charge premiums above their competitors while maintaining profitability.
Charge premiums below their competitors and compromise profitability
Charge premiums below their competitors and compromise profitability
201
What is a major drawback in using the burning cost method when calculating an insurance premium?
The figures used represent the ultimate value of claims.
Full allowance is not made for either claims or general inflation.
It takes into account only the insured’s claims experience.
The rating method is not easy to understand.
Full allowance is not made for either claims or general inflation.
202
For which classes of business would an underwriter use claims triangulation to assist in determining the past, present and future value of claims?
Commercial property and motor
Employers’ and public liability.
Household and private Motor
Personal accident and income protection.
Employers’ and public liability.
203
When building the expenses element on a motor insurance portfolio, what would the underwriter include as a fixed expense?
Insurance Premium Tax.
Intermediary commission.
IT costs.
Motor Insurers’ Bureau levy.
IT costs.
204
What type of risk is best suited to using the burning cost method as a means of premium calculation?
A large fleet of taxis with a high frequency of generally medium-sized claims.
An individual car policy on a luxury high value car with a low frequency of high value claims
A large FTSE 100 company’s property portfolio with a high frequency of claims with a wide range of values.
A small provincial property company with a low frequency of low value claims
A large fleet of taxis with a high frequency of generally medium-sized claims.
205
When reviewing the last five years’ claims data for a UK-based household portfolio, what other factor should an underwriter take into account when setting premium levels?
Competitors’ rates.
Exchange rates.
Inflation.
Sales volumes.
Inflation.
206
When considering the overall claims experience of the portfolio, what account, if any, should the underwriter take of incurred but not reported (IBNR) and incurred but not enough reserved (IBNER) information?
Exclude IBNER only.
Include IBNR only.
Exclude both IBNR and IBNER.
Include both IBNR and IBNER.
Include both IBNR and IBNER.
207
A claims handler receives a query regarding the extent of cover provided by the policy. Typically the query would be referred to the
actuary.
policy administration centre.
sales call centre
underwriter.
underwriter.
208
How would an actuary assist an underwriter in respect of an individual risk analysis on a large and complex commercial risk?
Advise on Solvency II requirements.
Calculate a burning cost premium.
Calculate the return on capital employed (ROCE)
Make claims projections.
Make claims projections.
209
Insurers X and Y are both operating in a market where competition is fierce and is likely to continue for the longer term. While Insurer X is still running a profitable account, insurer Y is faced with mounting losses. What action is insurer Y most likely to take?
Increase prices
Pull out of the market.
Relax underwriting requirements.
Widen policy cover
Pull out of the market.
210
What mechanism does the market research specialist Defaqto use to depict comparisons in different insurers’ policy covers, terms and conditions?
Coloured graphics.
Letters
Numbers.
. Star rating
Star rating
211
In addition to compensation claims for personal injury and illness incidents against individuals and businesses, what classes of business does the Claims and Underwriting Exchange (CUE) hold on its database?
Commercial and private motor only.
Commercial property and business interruption.
Household and motor
Travel and personal accident.
Household and motor
212
Insurer X buys reinsurance protection for 25% of his portfolio and insurer Y chooses a reinsurance arrangement that covers all amounts above a predetermined level. What types of reinsurance are insurers X and Y buying?
X is buying facultative and Y is buying surplus.
X is buying quota share and Y is buying excess of loss.
X is buying surplus and Y is buying quota share.
X is buying quota share and Y is buying excess of loss.
213
Where a commercial property underwriter uses a surveyor to make an assessment of the estimated maximum loss (EML) at a single location, this will be expressed as a percentage of
claims over last three years.
insured’s turnover
premium.
sums insured.
sums insured.
214
What would be an advantage and disadvantage respectively of an insurer using facultative reinsurance?
Acceptance by the reinsurer is guaranteed and labour-intensive administration.
Easy administration and the reinsurer can exercise influence over underwriting criteria
Automatic cover in place and expensive to administer.
Risks benefit from individual consideration and expensive to administer.
Risks benefit from individual consideration and expensive to administer.
215
Insurer X’s chief underwriter has used a catastrophe model to gauge the likely impact on the portfolio due to flood claims. What level of certainty of future flood losses is this model likely to provide?
Excellent.
Good.
Average.
Low.
Low.
216
What are the benefits to an underwriter of buying reinsurance?
Increased premiums, enhanced levels of cover and protection against catastrophic events.
Increased premiums, enhanced levels of cover and protection against catastrophic events.
Stability of underwriting result, increased underwriting capacity and protection against catastrophic events.
Stability of underwriting result, reduced underwriting capacity and protection against catastrophic events
Stability of underwriting result, increased underwriting capacity and protection against catastrophic events.
217
In addition to portfolio analysis and claims experience, what other information would a reinsurer require when providing a quotation?
Claims-handling expenses, return on capital employed (ROCE) and management expenses
. Company structure, branch and intermediary network.
Underwriting strategy, details of general management and trading results for the last three years
Underwriting strategy, risk appetite and acceptance criteria and geographical scope.
Underwriting strategy, risk appetite and acceptance criteria and geographical scope.
218
Pool Re provides catastrophe reinsurance protection for
. aircraft.
earthquake.
flood.
terrorism
terrorism
219
Stop loss reinsurance provides protection for
a portfolio of business for an unlimited period.
a portfolio of business over a 12 month period
a specific risk for a specified period
specific risks over a 12 month period
a portfolio of business over a 12 month period
