M92Jargon Flashcards
1
Q
1. Define Stakeholder
A
People or groups of people who have an interest in the way a company acts
2
Q
- What does a gearing ratio measure?
A
The ratio of debt to equity
3
Q
- Define the current ratio
A
Current Assets divided by Current Liabilities
4
Q
- Define Quick Ratio
A
Current Assets less Stock divided by Current Liabilities
5
Q
- What is a Non–Executive Director
A
Directors not involved in the day to day management of the business but who sits on the board and brings independence and outside expertise.
6
Q
- What is an Executive Director?
A
Director involved in the day to day management of the business.
7
Q
- Define IBNR
A
Incurred but not reported e.g. disease claims which are not reported for many years after the disease has been caused
8
Q
- What is a Rolling Budget””
A
The budget is changed in line with a company’s actual
performance.
9
Q
- What is a Zero–based budget?
A
The budget is set from a fresh standpoint rather than based on last year’s numbers
10
Q
- What is a Rolling budget?
A
Uses12 month budget but rebudgets as the year passes creating a 12 month rolling budget
11
Q
- 5 Cs of decision making
A
- Consider
- Consult
- Crunch
- Communicate
- Check
12
Q
- Three main activities analysed by a cash flow statement
A
- Operating activities.
- Investing activities.
- Financing activities.
13
Q
- Four standards of good practice required under the UK Corporate Governance Code
A
- Board composition and development.
- Remuneration.
- Accountability and audit.
- Relations with shareholders.
14
Q
- Four main rating agencies
A
- Standard and Poor’s.
- Moody’s.
- Fitch.
- AM Best.
15
Q
- Four qualitative characteristics that the International Financial Reporting Standards framework describes financial statements as having
A
- Understandability.
- Comparability.
- Reliability.
- Relevance.
16
Q
- Six responsibilities of a company’s board of directors
A
- representing the interests of the shareholders.
- oversee the senior management to ensure they uphold both shareholder interest
- approve the company report and accounts.
- select Chief Executive Officer
- Risk assessment
- legal and regulatory compliance.
- set corporate strategy.
- set dividends.
- select and appointment of external auditors.
- act in the best interests of the company.
- select and appointment of the company secretary.
17
Q
- Explain accruals basis””
A
The effect of transactions is recognised when they occur.
18
Q
- Explain ‘Going concern’
A
The financial statements are prepared on the basis that the organisation will continue to
operate for the foreseeable future.
19
Q
- Explain projection of paid claims” method of estimating the total cost of claims”
A
Extrapolate the paid claims and not use any other information, as claims will be subject to
inflation. This method assumes that typical claims inflation experienced in the past will also be
experienced in the future.
20
Q
- Explain projection of incurred claims” method of estimating the total cost of claims”
A
Extrapolate the incurred claims using the reserves should get more accurate estimation although can be distorted by changes in reserving practices.
21
Q
- Explain loss ratio method of estimating the total cost of claims
A
Underwriter estimates expected loss ratio then deduct existing paid claims and reserves to calculate IBNR. Only used for most recent years of account where there is scant claims information
22
Q
- Two options if insurers have inadequate regulatory capital
A
- Raise more regulatory capital.
2. Reduce the regulatory capital requirement i.e. reduce exposure
23
Q
- Three ways to reduce regulatory capital requirement
A
- reduce the volume of business written,
- purchase re–insurance
- switch out of higher risk assets.
24
Q
- Three ways to raise regulatory capital
A
- Issue more shares
- Issue long term debt
- Switch out of assets
25
7. Four key matters in insurance company accounts that stakeholders would want to consider
1. Security (Inclusive of solvency)
2. Liquidity.
3. Profitability.
4. Capital adequacy.
26
1. Outline six factors that an insurance company board would need to consider in
managing stakeholders.
1. Composition and significance of each group of stakeholders.
2. The power of each group c
3. Any legitimate claims that each group may have on the organisation.
4. The degree to which these claims conflict
5. The extent to which the organisation is satisfying claims.
6. The overall mission of the organisation.
27
6. State four areas where it is acceptable for general insurers to use variations in
claims development tables.
1. acquisitions or disposals.
2. foreign exchange fluctuations.
3. incurred but not reported claims i
4. effects of discounted liabilities
28
1. Benefits of organic growth
1. Delivery of long–term benefits and profitable relationships with clients.
2. Reduces uncertainty for employees and provides security/loyalty
3. More economical, as real value is not reduced through acquisition costs.
4. Easier for analysts to measure business effectiveness
5. less risky
29
2. Disadvantages of organic growth
1. takes more time to grow as have to deliver and grow
| 2. Takes longer to achieve than buying a book of business
30
1. Identify 6 fair treatment of customers outcomes under the FCA rules
1. fair treatment of customers is central to culture
2. products sold designed to meet needs
3. consumers have clear information at point of sale
4. advice suitable
5. products perform as consumers expect
6. No unreasonable barriers to making a claim
31
1. Four advantages of growing by acquisition
1. remove duplication
2. overcome cost of information technology
3. investment opportunities for surplus capital
4. spread risk
32
1. Six disadvantages of growing by acquisition
1. reduced customer choice
2. impact on staff
3. clash of cultures
4. eye off the ball'
5. Reduced customer service
6. Expected M&A savings often not realised
33
1. Five elements of a CRM approach
1. relationship not transaction focus
2. better understanding of customer buying patterns
3. proactive not reactive
4. adopt a total relationship management approach
5. enhance/complement additional revenue generation efforts
34
1. Five requirements of CII code of ethics
1. comply with code and regulations
2. act with highest ethical standards
3. act in best interest of each client
4. provide a high standard of service
5. treat people fairly regardless of race, sex etc.
35
1. list four sellers of insurance and how they transact insurance
1. direct insurers via email, telephone and internet
2. independent intermediaries – often face to face or email and progressively internet
3. retailers and affinity groups – white labelling" – sell insurers products in store via email and internet
36
1. identify five disadvantages of outsourcing
1. certain control lost
2. risk to reputation if service delivery not adequate
3. can be higher cost
4. risk to confidential information
5. financial failure of outsourced company
6. lose understanding of customer
37
1. identify five advantages of outsourcing
1. use external specialists
2. guaranteed level of service
3. pre agreed fixed costs
4. Outsourced company brings specialist skills
5. new partnership opportunities
6. speed to market
7. focus on core business
38
6. What are SORPs
1. SORPs are Statements of Recommended Practice recommendations for accounting practices for specialised industries such as insurance .
2. Association of British Insurers (ABI) issue a SORP (approved by ASB for insurance businesses.
3. It only applies to U.K. GAAP accounts not IFRS
4. Insurers who account using U.K. GAAP should state whether they comply with SORP.
39
6. What is the Bornhuetter Ferguson method
1. Method of predicting claims
2. It is a blend of the loss ratio method (used to predict most recent years and the paid or incurred loss projection methods (used to estimate earlier years)
40
6. What is the difference between written and earned premium
1. Written premium is the premium written in the accounting year (i.e. the total premiums of all risk that incepted during the year)
2. Earned premium is the premium earned in the accounting year calculated by the ratio of what proportion of the insurance period fall within the accounting period
41
What data is required by insurers to develop a claims reserving management information report
1. number of reported claims
2. number of nil claims
3. total value of paid claims
4. total value of outstanding claims estimates
42
What is the role of the FRRP
1. The FRRP Financial Reporting Review Panel is an operating body of the Financial Reporting Council
2. It reviews a sample of the financial statements of public and large private companies to check they comply with company law and accounting standards
3. If they do not like the directors accounting treatment they ask the directors to explain the departures from the standards
43
List four claims projection methodologies
1. Projection of paid claims
2. Projection of incurred claims
3. Loss ratio method
4. Bornhuetter Ferguson method
44
8. What does NR mean in Security ratings
Not rated
45
8. What is a risk appetite statement?
```
1. a statement of the risks that a company is willing to bear identifying what risks are =unacceptable, the probability of failure that is deemed acceptable and the maximum loss acceptable for one incident.
Used to set
– risk acceptance criteria
– investment policy
– reinsurance policy
```
46
8. Eight key steps in the security rating process
1. insurer meets rating agency
2. analysts meet senior executives
3. exhaustive analysis
4. lead analyst recommend rating
5. Committee vote on rating
6. Insurer informed of rating
7. Rating issued
8. Rating monitored
47
8. Eight common analytical areas in S&P security rating methodology
1. Economic and industry risk
2. Competitive position
3. Management and corporate strategy
4. Enterprise risk management
5. Operating performance
6. Investments
7. Capital adequacy
8. Liquidity
9. Financial flexibility
