Exam Questions Flashcards
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
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
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
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
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.
B
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.
D
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.
D
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.
C
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.
D
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.
C
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
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.
D
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.
B
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
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
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.
D
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 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.
C
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.
B
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.
B
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
B
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.
D
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.
B
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.
D
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
