MIXED QUESTIONS Flashcards by Anayla Ford

If an insurer is experiencing severe delays settling its claims, this is most likely to be seen as a failure to:

a. meet competition and markets authority requirements
b. meet contractual obligations
c. treat its customers fairly
d. meet prudential regulatory rules

c.Treat customers fairly.

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Within the Lloyds market, which specific body provides a daily insight role which includes approving business plans and new syndicate applications:

a. The Franchise Board
b. The PRA
c. The FCA
d. The Council of Lloyds

A. The Franchise Board

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A Takaful Insurer is one that:

A. uses Sharia compliant policies
b. is owned by a parent comany that is a multinational company
c. issues insurance policies in the USA
d. is owend by its policy holders

a.Sharia compliant

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In Assessing the profitability of an insurer, what ratio is most useful to an investor?

a. the debt turnover ratio
b. liquidity
c. solvency
d. Return on equity

D. return on equity

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In calculating the combines ratio, what information would not be included within the calculation?

a. long term borrowings
b. earned premium net of reinsurance
c. acquisition costs
d. net claims costs

Long term borrowings

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the use of ratios to measure the performance of a business is least useful when:

a. only one or two ratios is used in isolation
b. the business is well established
c. the results are compared to similar businesses
d. good quality financial information is availbale

a. when only one or two ratios are used in isolation

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when looking at a claims ratio, the:

a. lower the ratio, the more need for reinsurance
b. lower the ratio, the more secure the position
c. higher the ratio, the more secure the positoin
d. lower the raito, the less need for reinsurance

b - lower the ratio, the more secure the position

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liquidity differs from solvency in that solvency is a measure of:

a. pay short term obligations only
b. generate a positive retyrn for shareholders
c. pay long term financial obligations
d. generate a positive cash flow

c. pay long term financial obligations

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If the gross profit percentage ratio of an insurance broker were to fall, the most likely reason for this is:

a. an increase in the profit margin in the business
b. the business costs have fallen
c. an increase in premium levels
d. a decrease in premium levels

d. a decrease in premium levels

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a company has long term borrowings of £600,000, shareholders equity of 2,000,000 and expenses of £1,000,000. what is the gearing ratio?

a. 30%
b. 33%
c. 50%
d. 60%

a. 30% = Long term borrowings / shareholder equity x 100

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a company has long term borrowings of £600,000, shareholders equity of 2,000,000 and expenses of £1,000,000. what is the gearing ratio?

a. 30%
b. 33%
c. 50%
d. 60%

a. 30% = Long term borrowings / shareholder equity x 100

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gearing ratios compare:

a. cost of sales against average stock
b. borrowings against shareholders equity
c. profit as a percentage of sales
d. current assets against current liabilities

b. borrowings against shareholder equity

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an insurer shows the following figures within its accounts; gross profit before interest charges of £25M, share capital of £30M, reserves of £9M and borrowings of £10M. what is the return on capital employed?

a. 62%
b. 64%
c. 83%
d. 51%

d. 51%

gross profit / share capital + reserves + borrowings x 100

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an insurance company has net assets of £100M, liabilities of £80M and has an unearned premimu (net of reinsurance) of £60M, what is its solvency ratio

a. 0.20
b. 1.67
c. 1.33
d. 0.80

b. 1.67

net assets / net earned premium

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How might a consumer benefit from buying insurance using an aggregator, rather than direct from an insurer?

a. they would only need to input their details once to get quotations from several insurers
b. they would get the best advice
c. they would have to access all insurers
d. they can do so knowing that the price quoted always reflects the final price from each insurer

a. they would only need to input their details once to get quotations from several insurers

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A UK bank is looking to enter the UK insurance market without setting up their own insurance company is most likely to offer:

a. personal lines insurance as an appointed representative of an insurer, selling products in the insurers name
b. commercial lines insurance with selected insurers but branded in their own name
c. personal lines insurance with selected insurers but branded in their own name
d. personal lines insurance by acting as an insurance broker to get the best posible insurance solution

c. personal lines but in their own name

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within the lloyds market, which specific body provides a daily oversight role which includes approving business plans and new syndicate applications?

a. the PRA
b. The Franchise Board
c. The Council of LLoyds
d. the FCA

B. The Franchise Board

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What is is LEAST likely to be a reason for a UK insurer to consider outsourcing some of its UK operations?

a. To reduce regulatory requirements
b. costs of providing services can be reduced
c. service standards can be improved
d. gaining access to external expertise

a. to reduce regulatory requirements

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A Takaful insurer is an insurer that:

a. is owned by its policy holders
b. issues sharia compliant insurance policies
c. issues insurance policies in the USA
d. is owned by a parent that is a multinational company

b. issues sharia compliant insurance policies

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If an insurer is experiencing sever delays settling its claims, this is most likely to be seen as a failure to:

a. meet prudential regulatory rules
b. treat its customers fairly
c. meet competition and markets authority requirements
d. meet contractual obligation

b. treat its customers fairly

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A global company is one that:

a. identifies specific insurance markets in which to operate subsidiaries
b. operates in different countries but still has a home base
c. views the whole world as one market
d. operates a series of semi-independent operations under a global brand

c. views the whole world as one market

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what type of insurance company or organisation would not typically be regarded as a part of the london market?

a. lloyds of london
b. members of the International Underwriters Association
c. London based UK composite insurers
d. Life-insurers

d - life insurers

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If an insurance company is said to have ‘shareholder focus’ what does this say about how it operates?

a. it recognises that profitability requires it to play a wider role in society
b. it puts the interests of its shareholders first
c. it looks to achieve a long term balance of the interests of various stakeholders
d.large shareholders are consulted on how the business should balance achieving profitability and an active role in society

b. it puts the interest of the shareholder first

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The organic growth of a UK insurer is most likley to be best for the business because it:

a. is the easiest way to achieve economies of scale
b. often offers a better investment return
c. is the quickest way to grow
d. offers a high risk / high reward strategy

b. often offers a better investment return

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The role of reviewing the management of debt, cash flow and liquidity and treasury matters within a business is most likely to belong to that of the: a. chief actuary b. morning secretary c. managing director d. finance director

d. finance director

Management actions are often regarded as consisting of four key elements. what are these? a. organising, leading, controlling, finance b. controlling, finance, strategy, leading c. planning, organising, leading, controlling d. management, planning, organising, controlling

c. planning, organising, leading, controlling

corporate culture can best be described as: a. the history of the busines b. what people do when you are watching c. the way we do things around here d. the processes and proceedur

c. the way we do things around here

what would not typically be regarded as a part or component of all businesses? a. physical resources b. financial resources c. human resources d. intellectual resources

d. intellectual resources

To whom does the UK corporate governance code apply? a. UK listed companies only b. all non-UK listed companies c. Firms not authorised by the FCA and PRA only d. All firms subject to the Capital Requirements Directive

a. UK listed companies only

A company wishes to improve communication accross the business. what is the least likely reason for this: a. a change in culture b. regulatory compliance c. engagement of staff d. improved efficiency

b. regulatory compliance

in a corporate body, who usually has the responsibility for developing the strategy of the business? a. the chief executive officer only b. the non-executive board of directors only c. the board d. the company secretary only

c. the board

the purpose of a non-executive director within corporate governance is primarily: a. lead of board of directors b. provide an independent view specifically on regulation and financial matters, and be the organisations representative managing relations with shareholders c. provide an independent view on matters such as audit, mnagement remuneration and risk management d. work full time, managing part of the business on a day-to-day basis

c. provide an independent view on matters such as audit, management remuneration and risk management

with the action centrered leadership model, a leader that spends too much time focuing on the needs of individuals is most likely to result in a: a. political environment where self-interest comes first b. high achieving environment where all team members feel their needs are addressed c. high achieving envionment with high levels of individual and team motivation d. supportive environment but where the team does not always meet its goals.

d. supportive environment but where the team does not always meet its goals.

A business has a culture where decisions are taken with prior reference to as many staff members as possible. This management style is best described as: a. open door b. paternalistic c. hierarchial d. democratic

d. democratic

The most common reason why a mutual insurance company would demutualise is to: a. Raise capital b. reduce its regulatory burden c. transact life insurance d. undertake reinsurance business

a. raise capital

The independent companies appointed by lloyds underwriting members to oversee the underwriting of a business by syndicates are known as: a. brokers b. franchisers c. managing agents d. names

c. managing agents

In what principal way has the UKs legal system influenced the growth of the international insurance market? a. All insurance policies issued by UK insurers are subject to English law b. English case law is recognised and its practice is followed in every country c. international insurance disputes are always referred to English courts d. many international insurance judicial precedents have been developed under English Law

d. many international judicial precedents have been developed under english law

When an insurance company seeks to play a role in society through sponsorship and community projects, this is known as: a. An ethical standard b. a principles - based approach c. a shareholder focus d. a stakeholder perspective

d. stakeholder perspective

A life insurance company aims to grow non-organically through horizontal integration. This can most commonly be achieved by: a. acquiring a small reinsurance company b.acquiring a specialist general insurance company c. merging with a large broker network company d. merging with another life assurance company

d. merging with another life assurance company

What is a public company legally obliged to do, which a private company is not? a. appoint a company secretary b. comply with the financial conduct authority's conduct of business rules c. purchase errors and omissions insurance d. register with companies house

a. appoint a company secretary

An insurer uses balanced scorecards within its business. The main purpose of this is to: a. calculate insurance premiums b.calculate financial strength c. monitor its progress of plans d. reduce its costs

c. monitor its progress of plans

in the context of management information systems, a control cycle is best described as the: a. production of reports by exception to show where action may be needed b. compilation and redistribution of an organisations collective skillls c. consultation between a manager and his team members d. provision of conditions which will help a manager to achieve his key objectives

a.production of reports by exception to show where action may be needed.

what type of UK based insurance company is always subject to the UK corporate governance code? a. an insurance company listed on the London Stock Exchange b. An insurance company with an overseas subsidiary c. a life assurance company d. a reinsurance company

A. an insurance company listed on the London Stock Exchange

An international composite insurer is drafting its annual report. in accordance with the companies act 2006, what is the position regarding the inclusion of the chairmans statement in this report? a. it is always mandatory b. it is only required if the directors report is included also c. it is only required if a directors report is not included d. its optional in all circumstances

d. it is optional in all circumstances

an insurer has committed a breach, under the General Data Protection Regulation Act (GDPR). This breach has a likely hood to risk the peoples rights and freedoms. within what maximum period must the breach be reported to the informations commissioners office? a. 24 hours b. 48 hours c. 72 hours d. 96 hours

c. 72 hours

Which function within an insurance company is primarily responsible for analysing potential mergers and acquisitions? a. finance b. internal audit c. investment d. strategy

d. strategy

to whom is financial accounting useful? a. financial analysts only b. internal management only c. the regulator only d. stakeholders

d. stakeholders

One of the main differences between financial accounts and management accounts is that only: a. financial accounts are legally required to be prepared and published b. financial accounts are produced on a calendar year basis c. management accounts are a useful indication of liquidity d. management accounts are required to be audited

A. Financial accounts are legally required to be prepared and published

which financial document best gives an indication of a companies liquidity? a. an auditors report b. cash flow statement c. directors report d. an income statement

b. cash flow statement

A company purchased a machine with a useful life of 8 years for £24,000. Its residual value at the end of the period is estimated to be 2,000. When using straight line depreciation, how much depreciation is shown in the accounts solely for year two of this period? a. 2,750 b. 3,000 c. 5,500 d. 6,000

a. 2,750. year one is full value = 24,000 - 2,000 = 22,000 / 8 = 2,750.

An item has been inserted in a companies balance sheet in respect of machinery. Under which classification will this normally appear?\ a. current assets b. current liabilities c. non-current assets c. non-current liabilities

non-current assets

The internal rate of return is most commonly used to measure the: a. financial constraints that departments are working under b. financial viability of undertaking future projects c. reduction in yield resulting from external costs d. reduction in yield resulting from fixed costs

d. financial viability of undertaking future projects

In addition to inflation, what external influence should an insurer take into account when calculating a personal injury claim reserve? A. Actuarial premium rate increases. B. Frequency of catastrophe claims. C. Market share of liability business. D. Recent outcomes of litigated claims.

D. Recent outcome of litigated claims

When reserving for claims under long-tail insurance classes, the amounts may be discounted to allow for A. Corporation Tax savings. B. general cost savings. C. expected investment income. D. market risk fluctuations

C. Expected investment income

How is an insurer’s claims ratio within its combined ratio calculated? A. Claims incurred net of reinsurance divided by earned premium net of reinsurance. B. Claims paid divided by net assets. C. Earned premium net of reinsurance divided by claims paid net of reinsurance. D. Net assets divided by claims paid.

A. Claims incurred net of reinsurance divided by earned premium net of reinsurance

A company’s measure of liquidity is indicated by a current ratio of 1.36 and a quick ratio of 1.28. The difference between the two ratios usually arises as a result of the amount of A. debtors. B. depreciation. C. goodwill. D. stock.

D. Stock

Which type of activity in the Standard and Poor’s insurance ratings framework is most likely to be classified as a modifier? A. Committee voting. B. Enterprise risk management. C. Industry and country risk. D. Recommending a rating level.

B. Enterprise risk management

Who arranges for a credit rating agency to produce a financial security rating on an insurance company? A. The external auditors. B. The Government. C. The insurance company. D. The regulator.

C. The insurance company

An insurer intends to assess its position via a use test. This forms part of the rules relating to A. capital adequacy modelling. B. claims reserves adequacy. C. internal audit processes. D. risk tolerance levels.

A. Capital adequacy modelling

A UK-based insurer has recently merged with a US-based insurer to form an international organisation with its head office in London. The UK and US insurers individual books of business are uncorrelated. This was a deliberate part of the merger strategy by both companies. The UK and US insurers have significantly different information technology (IT) platforms which will need to be reviewed. Matt leads the IT Department for the UK insurer and Adam the IT Department for the US insurer. In their initial discussions, both Matt and Adam agree that an external server farm should be considered to improve efficiency. The new organisation plans to fund part of this IT project from reserves. Matt and Adam also intend to recommend a plan to rationalise their departments in the newly-formed organisation. However, it has been observed that in terms of management style, Matt operates an open-door policy and Adam a hierarchical style of management. 1. The strategy behind the formation of the new organisation indicates that the focus was: A. an increased presence in a niche market. B. an investment opportunity in global equities. C. to reduce its overall solvency capital requirement. D. to take full control over sources of supply. 2. The difference between the management styles of Matt and Adam is that: A. Adam is more focused than Matt on building team spirit and morale. B. Adam is more likely to consult his staff than Matt. C. Matt will be seen as being more approachable than Adam. D. Matt will be seen as being more autocratic than Adam. 3. In respect of the new organisation, a statutory external audit will: A. be legally required to ensure that management accounts reflect the combined organisation. B. be legally required to ensure that the financial accounts truly reflect the combined organisation. C. only inspect the UK insurer’s records. D. only inspect the US insurer’s records. 4. What will be the implications of the new organisation using a server farm? A. The current servers used by each organisation will be completely compatible. B. Daily automatic data backup will no longer be necessary. C. The data held by each company will be consolidated and cleansed by an independent server provider. D. Server storage space will be transferred to independent premises. 5.What will be the consequence of using some of the reserves to fund the IT project? A. Any subsequent increase in profits may pass to shareholders as dividends. B. The level of current liabilities will be increased. C. The level of gearing will be reduced. D. Net current assets will be depleted.

1 = C. To reduce its overall solvency capital requirement 2 = C. Matt will be more approachable than Adam 3 = B. Be legally required to ensure that the financial accounts truly reflect the combined organisation 4 = D. Server storage space will be transferred to independent premises 5 = A. Any subsequent increase in profits may pass to shareholders as dividends

Leo is the finance director of an insurer. The insurer, a stand-alone company, has recently acquired a new company. The new company has become a subsidiary company of the insurer. Both the insurer and the new subsidiary use claims development tables. The presentation of these tables is as required under the International Financial Reporting Standards (IFRS) requirements. The insurer now has access to capital from this new subsidiary company. Leo has been asked by an investor to clarify the position regarding the insurer’s capital requirements on an ongoing basis. The insurer’s financial data indicates that, over three years, the combined ratio has changed from 101.2% to 99.7%. 1. What will Leo’s activities most likely include? A. Calculation of individual claims reserves. B. Identifying dependencies through flow process analysis. C. Preparation for reviews by rating agencies. D. Pricing of new insurance products. 2. How will the recent acquisition of the subsidiary be shown on the insurer’s cash flow statement? A. As a cash inflow from financing activities. B. As a cash inflow from investment activities. C. As a cash outflow from financing activities. D. As a cash outflow from investment activities. 3. The use of claims development tables provides valuable information about the: A. ability to charge higher prices. B. level of unrealised gains and losses. C. nature of breaches of internal controls. D. prior estimates of outstanding amounts. 4. In answer to the investor’s query regarding capital requirements on an ongoing basis, Leo should explain that: A. all financial statements must be assessed and viewed on a consolidated basis. B. appropriate adjustments may be needed to satisfy the regulator. C. provided all the figures are included on the insurer’s balance sheet, no additional issues arise. D. there will be no additional regulatory requirements provided that no trading takes place between the two companies. 5. The change in the combined ratio is most likely to indicate that the insurer has A. increased its administration expenses. B. increased its long-term borrowing. C. improved its investment returns. D. improved its underwriting results.

1 = C. preparation of reviews by rating agencies 2 = D. As a cash outflow from investment activities 3 = D. Prior estimates of outstanding amounts 4 = B. Appropriate adjustments may be needed to satisfy the regulator 5 = D. Improved its underwriting results

Tim is the supervisor of a team in an insurer’s internal audit department. He involves as many of his team members as possible when making decisions. Two new employees have recently joined Tim’s team. The two new team members are both experienced in the areas of customer complaints and information technology security management. The insurer’s culture is to keep services in-house as far as possible. The insurer produces a series of management reports aimed at informing managers about a wide range of business matters. The insurer is classified as a large company and Bev has been appointed to its audit committee. Bev seeks to understand the full financial position of the insurer and checks the usual financial ratios regularly. The insurer has undertaken a recent liquidity ratio calculation and the result is lower than the same calculation undertaken last year. 1. What management style does Tim operate? A. Autocratic. B. Democratic. C. Hierarchical. D. Paternalistic. 2. The changes to personnel in Tim’s team are most likely to have been driven by: A. an increase in the number of themed reviews in the audit plan. B. the need to act as the point of contact for regulators. C. the need to report to both the audit committee chairman and more than one senior executive on report findings. D. a significant increase in outsourced reviews as decreed by the board of directors. 3. The Corporate Governance Code on audit committees require Bev to A. be a qualified actuary. B. have just one other person to work with her. C. regularly review the effectiveness of Tim’s team. D. work under the guidance of the external auditor. 4. With regard to the various management reports produced within the insurer, Tim’s team A. collates any required by the regulator. B. oversees the production of those required solely for management purposes. C. verifies any required by the regulator before they are sent. D. verifies their reliability and accuracy. 5. The result of the recent liquidity calculation indicates that since last year the insurer’s liquidity has A. become more volatile. B. worsened. C. improved. D. been unaffected.

1 = B. Democratic 2 = A. An increase in the number of themed reviews in the audit plan 3 = C. regularly review the effectiveness of Tims team 4 = D. Verifies their reliability and accuracy 5 = C. Improved

Zoe works for an insurer which is a wholly owned subsidiary of a bank. The insurer has recently started a major new sales campaign via the internet and the bank feels that the new campaign will offer significant benefits for its customers. The policies sold through this campaign will usually have monthly premium payments. Zoe acts in a first response role in the insurer’s claims department and is currently handling a household policy claim from Tom where significant property damage has occurred. Zoe’s friend, George, works at the same insurer in the finance department. Included amongst his tasks is the responsibility for raising debit notes. Due to significant expenditure on the insurer’s campaign, for which results are only just beginning to come through, the insurer’s return on equity (ROE) ratio is currently 6%. A credit rating agency has just completed an assessment of the insurer. This assessment included work under the specific classification of Business Risk Profile. 1. The significant benefits to the bank’s customers of the new campaign run by the insurer are most likely to relate to: A. the availability of non-standard classes of business. B. higher standards and wider availability of customer service. C. a range of options on cover and price. D. specifically tailored solutions for the individual customer. 2. Zoe’s specific role in respect of Tom’s claim is to: A. ensure the claim is paid promptly. B. minimise the potential for further damage. C. obtain authority to make an interim payment. D. oversee the repairs process. 3. The credit rating agency’s specific assessment will have considered the insurer’s A. competitive position. B. enterprise risk management. C. government support. D. sovereign risk. 4. For what transactions will George raise debit notes? A. All amounts owed to the business by other parties. B. All monies owed by the business to other parties. C. Monies owing to reinsurers and for outstanding claims only. D. Premiums owed by policyholders only. 5. What does the insurer’s ROE of 6% indicate? A. The insurer is being charged a 6% interest rate on its long-term borrowings. B. The insurer is making a 6% profit relative to its capital. C. The insurer is obtaining a 6% interest rate on its instalments. D. A shareholder is making a 6% profit before tax on his investment.

1 = C. a range of options on cover and price 2 = B. Minimise the potential for further damage 3 = A . Competitive position 4 = A. All amounts owed to the business by other parties 5 = B. The insurer is making a 6% profit relative to its capital

Mick is a supervisor in an insurer’s customer service department. He has received a complaint from a policyholder, Meg, regarding the use of her personal data by the insurer’s outsourced call centre in India. She does not think this centre has any right to know her personal details. Mick is able to verify that the correct procedure has been followed. Mick is collating data for a review of activities against key performance indicators (KPIs). Most of this data relates to effort-oriented KPIs but one particular measure causing concern represents the ‘bottom line’. Mick has referred this concern to management, who are assessing appropriate action to be taken in accordance with the second line of defence. The insurer uses an activity-based costing system. Mick’s department is regarded as a profit centre for this purpose. The following financial data is available in the insurer’s accounts: Claims £80,000,000 Expenses £12,000,000 Acquisition Costs £17,000,000 Earned Premium Net of Reinsurance £110,000,000 1. Mick’s confirmation that the correct procedure has been followed is most likely to be due to: A. appropriate regulatory approval for use of the call centre. B. the choices made in the insurer’s data protection registration. C. the level of training given to the employees in the call centre. D. Meg having given her express consent. 2. The KPI measure causing concern to Mick is most likely to be A. the number of complaints resolved within a planned timeframe. B. a reduction in market share. C. a significant increase in staff turnover. D. staff failing to respond to surveys on staff relations. 3. Following the referral from Mick, what action should be taken by the insurer? A. Determine changes required to reduce the level of the problems. B. Discipline the staff concerned. C. Disclose the issue to the regulator. D. Implement a recovery plan. 4. Under the activity-based costing system used by the insurer, Mick’s department will: A. be allocated a fixed cost per annum by a central department. B. be invoiced by a central department on a cost per unit basis. C. charge other departments a fixed cost per annum. D. operate a zero-based budgeting approach. 5. The insurer’s combined ratio is A. 83.63% B. 88.18% C. 99.09% D. 100.91%

1 = D. Meg having given her express consent 2 = B. a reduction in market share 3 = A. Determine changes required to reduce the level of the problems 4 = B. Be invoiced by a central department on a cost per unit baiss 5 = C. 99.09% = Claims + Expenses + Acquisition costs / Earned premium net of reinsurance x 100

A shareholders’ liability under a proprietary company is: A. 50% of the nominal value of their shareholding. B. the nominal value of their shareholding. C. 50% of the total liabilities of the company. D. unlimited.

B. The nominal value of their shareholding

Two factors that have allowed the City of London to develop into an international insurance centre are? A. highly qualified personnel and office space both being available at competitive prices. B. the high number of domestic insurers and a lack of foreign insurers. C. the growth in numbers of both direct insurers and aggregators. D. white-labelling products being available and the growth in the number of tour operators.

A. Highly qualified personnel and office spave both being available at competitive prices

Insurer X is a multinational company and insurer Y is a global company. This means that only A. insurer X regards the world as one potential market. B. insurer Y’s aim is to be regarded as a centralised business. C. insurer Y is permitted to have a base in the UK. D. insurer Y operates in a number of different countries.

B. Insurer Y's (Global company) aim is to be regarded as a centralised business.

What are customer stakeholders of an insurer most likely to expect? A. Competitively-priced products. B. Fair competition to be evidenced. C. Increased share value. D. Sustained and increasing investment growth

A. competitively priced products

Which distribution channel for insurance most commonly offers white-labelled products? A. Aggregators. B. Intermediaries. C. Retailers. D. Travel agents

C. Retailers

The chief actuary of an insurance company is usually responsible for A. management of debt and cashflow. B. overseeing the risk management process. C. preparing the profile of gross premium by currency. D. technical pricing of new and existing products

D. technical pricing of new and existing products

An insurance company’s tactical plan may refer to A. development of new insurance products over a 2-year period. B. long-term resource allocation over a 10-year period. C. routine day-to-day methods of working. D. weekly monitoring of budgets.

A. development of new insurance products over a 2-year period.

The senior managers of an insurance company are reviewing performance against a monthly requirement to have no IT downtime of greater than 30 minutes a quarter. They are reviewing a A. key effort-oriented performance indicator. B. key results-oriented performance indicator. C. key risk indicator. D. key strategy analysis.

C. key risk indicator.

Which UK companies are required to report whether they are compliant with the UK Corporate Governance Code? A. All UK companies. B. Only those which are limited companies. C. Only those listed on the London Stock Exchange. D. Only those with a turnover in excess of £1,000,000.

C. Only those listed on the London Stock Exchange

Which UK companies must have Articles of Association? A. Only those listed on the London Stock Exchange. B. Only those which are private companies. C. Only those with a turnover in excess of £1,000,000. D. All those which are registered with Companies House.

D. All those which are registered with Companies House.

What is shown respectively on a company’s income statement and balance sheet? A. The income statement shows the financial position at a particular point in time and the balance sheet shows the results of transactions during the accounting period. B. The income statement shows the results of transactions during the accounting period and the balance sheet shows the financial position at a particular point in time. C. The income statement shows the financial position at a particular point in time and the balance sheet shows the sources and uses of cash. D. The income statement shows the sources and uses of cash and the balance sheet shows the financial position at a particular point in time

B. The income statement shows the results of transactions during the accounting period and the balance sheet shows the financial position at a particular point in time.

Which type of organisation deals with underwriting on behalf of an insurer and undertakes activities such as marketing and administration? A. An aggregator. B. A captive insurer. C. A managing general agent. D. A reinsurance company.

C. A managing general agent.

What is the primary function of financial accounting? A. To allow internal auditors to report on the adequacy of control systems. B. To assist managers in formulating strategic plans. C. To provide information on individual departments within an organisation. D. To report the financial position to all stakeholders.

D. To report the financial position to all stakeholders.

Management accounting differs from financial accounting in that management accounts A. are distributed to all stakeholders. B. are prepared specifically for calculation of taxation liability. C. are used to determine shareholders’ dividends. D. need not be audited by external auditors.

D. need not be audited by external auditors.

The chief executive officer of a large insurance company wishes to review its solvency margin. From which financial document will he obtain the necessary information? A. Balance sheet. B. Cash flow statement. C. Management accounts. D. Profit and loss account.

A. Balance sheet.

When depreciation is shown in a company’s financial accounts, accounting concepts require that this represents the A. amount of the company’s turnover minus the cost of sales. B. cost of an asset apportioned over the financial period during which the company will benefit from the use of that asset. C. difference between the amount paid for acquiring a company and the value of the net assets of that company when acquired. D. money used to finance daily trading activities.

B. cost of an asset apportioned over the financial period during which the company will benefit from the use of that asset.

An insurance company uses the double-entry accounting principle for recording insurance transactions to reflect that it has A. earned an amount of income which is balanced by an increase in cash. B. made long-term investments which are balanced by an increase in cash. C. made provision for outstanding losses which are balanced by a decrease in cash. D. sold assets which are balanced by a decrease in cash.

A. earned an amount of income which is balanced by an increase in cash.

A balance sheet records a company’s A. gross cash flow. B. gross financial position. C. net cash flow. D. net financial position.

D. net financial position.

Which method of projecting the total cost of claims solely extrapolates the paid claims and does NOT use any other information? A. Bornhuetter-Ferguson. B. Loss ratio method. C. Projection of incurred claims. D. Projection of paid claims.

D. Projection of paid claims.

An insurer is establishing its claims reserving policy on a discounted claims basis. This confirms that A. claims values appear to be inflated. B. incurred but not reported claims are being written-off. C. investment income is being taken into account. D. voluntary excesses are being applied by policyholders.

C. investment income is being taken into account.

How is an insurer’s gearing ratio calculated? A. Long-term borrowings divided by shareholders’ equity. B. Short-term borrowings divided by shareholders’ equity. C. Shareholders’ equity divided by long-term borrowings. D. Shareholders’ equity divided by short-term borrowings.

A. Long-term borrowings divided by shareholders’ equity.

How is an insurer’s solvency coverage ratio calculated? A. Cash plus investments divided by total liabilities. B. Regulatory capital available divided by surplus regulatory capital. C. Surplus regulatory capital divided by regulatory capital available. D. Total liabilities divided by cash plus investments.

C. Surplus regulatory capital divided by regulatory capital available.

When looking at the financial strength of an insurance company, a rating agency’s methodology takes into account the company’s capital adequacy which represents its A. ability to efficiently manage cash flows and borrow money if required. B. combination of the loss ratio, expense ratio and combined ratio. C. potential requirement for additional capital or liquidity in the future. D. quality and level of capital required to run the business

D. quality and level of capital required to run the business

The financial strength of an insurance company as measured by a ratings agency is always A. based only on publicly-available information. B. a measure of its ability to pay all debts. C. a measure of its ability to pay claims. D. shown in its cash flow statement.

C. a measure of its ability to pay claims.

When looking at the solvency requirements of insurance firms, the Prudential Regulation Authority states that the probability factor that should NOT be exceeded is A. 1 chance in 200 over a 12-month timescale. B. 1 chance in 200 over an 18-month timescale. C. 1 chance in 500 over a 12-month timescale. D. 1 chance in 500 over an 18-month timescale.

Mark is employed as a risk manager in the London office of a large multinational retail group, which is listed on the London Stock Exchange. Mark has some shares in the company. The multinational retailer’s main offices are located in London with subsidiary companies based in New York, Paris, Frankfurt and Dubai. The London office has arranged to transfer part of the group insurance risk to an insurer, owned by the group, based in Dublin. The annual accounts of the London office are compiled each year to International Financial Reporting Standards. On 5 May Mark is on an insider list and learns that the London office is undergoing serious financial issues. The company is looking to sell off overseas businesses, including the New York office, to release equity. The London office is a large multi-storey office block purchased using a bank loan. The company have agreed to pay back the loan over the next 15 years. 1. The insurance company that is based in Dublin is most likely to be a A. captive company. B. mutual company. C. reinsurance company. D. takaful company 2. Where, if at all, in the annual report accounts, must a statement appear from the London based chairman of the retail group? A. It must form part of the balance sheet. B. It must form part of the directors’ report. C. It must form part of the income statement. D. It is not required. 3. Under which Act would it be a civil offence if Mark were to sell his shares following information obtained in May? A. Bribery Act 2010. B. Companies Act 2006. C. Financial Services and Markets Act 2000. D. Proceeds of Crime Act 2002. 4. What scope of risks within risk management is likely to be affected by the London office’s financial issues and the need to sell off the New York office? A. Credit. B. Group. C. Market. D. Operational 5. The bank loan used to purchase the London office building would be classified on the company balance sheet as being a A. current asset. B. current liability. C. non-current asset. D. non-current liability

1. A. captive company. 2. D. It is not required. 3. C. Financial Services and Markets Act 2000. 4. B . Group 5 - D. non-current liability.

Joe is a business manager at a UK-based, publicly-quoted insurance company. Joe has been asked by theBoard to clarify a number of matters relating to the use of information within the company and some associated points. The company has a vast amount of information that has been collected by them including policy and loss data. Consideration is being given to who should have access to such information. The company also reuses information especially in relation to the provision of underwriting administrative services. Consideration is being given to where this best fits. Given the importance of information within the company, it has been deemed essential that the Information Technology (IT) department have a broad role, working closely with the business. Consideration is being given as to what the IT department should therefore be involved in. The company has been making satisfactory profits and there has been debate about the information shareholders receive in relation to the distribution of profits and dividend payments. The company receives information in the form of a financial strength rating from a rating agency. However, some executives have questioned the value of this and the rating agency process. 1. Joe should advise the Board it is important that the policy and loss data is A. restricted to the use of the chief actuary only. B. never used again as this is not permitted by the Data Protection Act 1988. C. readily accessible by all appropriate employees. D. readily accessible by all stakeholders. 2. Joe should advise the Board that the underwriting administration services information currently in use is most commonly known as a A. bespoke benchmarking system. B. codified knowledge management system. C. learning management system. D. personalised knowledge management system. 3. Joe should advise the Board that if the IT department is to fulfil its role within the company, it must A. carry out themed audits of the IT area. B. ensure all employees carry out controlled functions. C. make a proactive contribution to the development of business strategy. D. procure offices to meet the accommodation needs. 4. Joe should advise the Board that shareholders are given information on dividend payments which recognises that A. only individual and personal messages are supplied to shareholders on the reasons for payment levels. B. payments are never made when the underlying value of the company’s shares has increased. C. payments increase on an automatic basis year-on-year. D. shareholders’ payments may be held back to fund future expansion. 5. Joe should advise the Board that a strong rating from a ratings agency A. assists the insurance broker who distributes the company’s insurance products to decide on their risk appetite when placing business. B. is a highly-subjective process as it uses little quantitative and qualitative information. C. is only ever provided on publicly-available information. D. will have no connection with the company’s earnings stability or its ability to grow capital.

1. C. readily accessible by all appropriate employees. 2. B. codified knowledge management system. 3. C. make a proactive contribution to the development of business strategy 4. D. shareholders’ payments may be held back to fund future expansion. 5. A. assists the insurance broker who distributes the company’s insurance products to decide on their risk appetite when placing business.

John is considering whether to buy shares in a listed insurance company. His neighbour, Mary, works in the company’s finance department and provides John with a copy of the latest report and accounts. John notes that the company has negotiated some new loans. He calculates the return on equity and the liquidity ratios. Mary explains to John that the company has an organic growth plan to increase revenue by 30%. 1. In which financial statement within the report and accounts will the receipts from the new loans been shown? A. Cash flow from financing activity. B. Cash flow from investment activity. C. Cash flow from operating activity. D. Income as a net investment return. 2. In which financial statement within the report and accounts will John find details of the company’s assets and liabilities? A. Balance sheet. B. Cash flow. C. Profit and loss. D. Revenue. 3. What information has John used to calculate the return on equity? A. Assets and liabilities. B. Gross profit and sales revenue. C. Long-term borrowings and shareholders’ equity. D. Profit after tax and capital. 4. The company’s liquidity ratio will show the relationship of A. borrowings as a percentage of equity. B. liabilities to cash and investments. C. net assets to income. D. profit to shareholders’ capital. 5. What is the main disadvantage of the company’s chosen growth structure? A. Building the business may take a long time to achieve. B. The business may be too dependent on a limited number of suppliers. C. Customer service may be reduced whilst changes are being implemented. D. Organic growth is a risky strategy.

1. A. Cash flow from financing activity 2. A. Balance sheet 3. D. profit after tax and capital 4. B. liabilities to cash and investments. 5. A. Building the business may take a long time to achieve.

An insurer has recently expanded because employee numbers have increased following the acquisition of a specialist firm of loss adjusters. The insurer aims to provide an enhanced claims service. The insurer operates a system whereby each department sets its own budget for a 12-month period. This is incorporated into a company budget by John, the finance director, who will allow some budgeting changes to be made if actual costs unexpectedly change during the financial period. The budget is used by senior management as part of its management accounting process to plan its objectives and to assess whether these objectives are being met. John as the finance director is also responsible for all the insurer’s financial accounts. 1. The acquisition by the insurer is an example of A. financial growth. B. horizontal integration. C. organic growth. D. vertical integration. 2. At what level of information will the insurer’s overall budget be categorised? A. Operational. B. Regulatory. C. Strategic. D. Tactical. 3. John’s essential role within the insurer is best described as A. conducting loss modelling to predict aggregate exposure. B. ensuring that sufficient capital and reserves are available to meet solvency requirements. C. examining activities to ensure that practices conform to documented operational procedures. D. protecting the insurer’s objectives and reputation. 4. The financial accounts which John produces differs to the management accounts that are produced internally within the insurer. This is because the financial accounts A. always involve internal planning whereas management accounts can always be formulated to meet the insurer’s requirements. B. are only providing forecasts whereas management accounts are based on historical information. C. can be formulated to meet the insurer’s requirements whereas management accounting is only concerned with internal planning. D. record the financial impact of events whereas management accounts provides forecasts. 5. The budgeting system operated by the insurer is known as A. bottom-up flexible budgeting. B. rolling 12-month budgeting. C. top-down flexible budgeting. D. zero-based budgeting

1. D. vertical integration. 2. C. Strategic. 3. C. examining activities to ensure that practices conform to documented operational procedures. 4. D. record the financial impact of events whereas management accounts provides forecasts. 5. A. bottom-up flexible budgeting.

Tim is the newly-appointed chief executive officer of an insurance company. He has been tasked with turning the business around to a more profitable concern as it has been experiencing difficult trading conditions. Tim leads the Board of the company, which comprises the usual executive roles. He realises that a radical shake up of the business is required which, for a time, will require new working regimes and tight deadlines if the new targets set by the Board are to be achieved. Currently recorded written premiums are £90,000,000 and earned premiums are £95,000,000. When conducting a benchmarking exercise against similar-sized competitors, it is found that whilst the combined ratio compares favourably, the company’s return on capital employed is significantly lower. The sales director suggests that the claims function could be outsourced to a specialist-claims handling service provider under the terms of a service level agreement stipulating that compliant standards of service are maintained. In doing so this would free up resources to enable the company to concentrate on core activities and that new business could grow significantly if the current 30-day period of credit given to brokers was extended to 90 days. 1. Which management style would it be best for Tim to adopt during this period of radical change? A. Autocratic. B. Consultative. C. Open door. D. Paternalistic. 2. What is the most likely explanation for the company’s return on capital employed being lower than its competitors? A. Excessive administrative expenses. B. High reinsurance costs. C. Over-reserving of outstanding claims. D. Poor investment returns. 3. If the company were to adopt both of the sales director’s proposals, what would be the most likely consequence? A. The additional growth will always result in the acceptance of poor quality business. B. The additional business will stretch existing operational resources. C. Compliance will become less demanding. D. Financial resources will be impaired. 4. Who would be responsible for compliance of the claims function if the activity was outsourced to a specialist claims-handling company? A. The Financial Conduct Authority would be solely responsible. B. The insurer would be solely responsible. C. The specialist claims handler would be solely responsible. D. The insurer and the specialist claims handler would be jointly and severally responsible. 5. What is evidenced by the current levels of written premiums and earned premiums? A. A declining book of business. B. Excessive business acquisition costs. C. Increased reinsurance costs or cover. D. Strengthening of claims reserves.

1. A. Autocratic. 2. D. Poor investment returns. 3. D. Financial resources will be impaired. 4.B. The insurer would be solely responsible. 5. A. A declining book of business

An insurer would use forecasting as a part of its budgeting process to: a. quantify future levels of profitability. b.plan its future need for capital resources. c.establish the level of risk associated with delivering the business plan. d.identify the differences between planned and actual income and expenditure.

b. plan its future need for capital resources.

Within this business, action is only taken where variations to budget are outside plus or minus 3% of target. What is this approach called? a. Flexible budgeting. b.Top down budgeting. c.Management by objectives. d.Management by exception

d.Management by exception

A business plan that focuses on the policies necessary over one to three years to implement key elements of strategy is called a[n]: a. strategy plan. b. tactical plan. c. controls plan. d. operational plan.

b. tactical plan

In the Kaplan and Norton balanced scorecard, which perspective of business performance is NOT explicitly measured? a. Customer. b. Risk management. c. Financial. d. Internal.

b. Risk management

Tactical information used by middle management would include: a. information on overall business profitability. b. variance analysis reports. c. data on future market prospects. d. data on total cash needs.

b. variance analysis reports.

Within the five 'C's decision making model, the first stage of decision making is to: a. consult. b. check. c. crunch. d. consider.

d. consider.

A departmental manager has a budget that is added to at the end of each month so he always knows what his budget will be for the next twelve months. What is this type of budgeting known as? a. Zero-based budget. b. Flexible budget. c. Fixed budget. d. Rolling budget.

d. Rolling budget.

When preparing budgets for a family-owned insurance broker, what factor is the management team LEAST likely to take into account? a. Reinsurance costs. b. Brokerage and fee income. c. Salary costs. d. IT costs.

a. Reinsurance costs.

Under variance analysis, what is LEAST likely to be the cause of a variance? a. Failure to meet operational efficiencies. b. Cost increases in line with inflation. c. Inadequate pricing. d. Random events.

b. Cost increases in line with inflation.

An insurer is keen to identify the organisation's skills and experience so that it can be best used across the organisation as a whole. This process is known as: a. performance management. b. knowledge management. c. personnel strategy. d. gap analysis

b. knowledge management.

If a UK stock market listed business is NOT fully compliant with the UK Corporate Governance Code, it must: a. ask its auditors to make recommendations to address the failings. b. state in its annual report where it is not compliant and provide reasons. c. advise the FCA. d. advise the London Stock Exchange.

b. state in its annual report where it is not compliant and provide reasons

Which type of business is subject to the UK Corporate Governance Code? a. Small family companies. b. Sole traders. c. Companies listed on the London Stock Exchange. d. Partnerships

c. Companies listed on the London Stock Exchange

Who is ultimately responsible within a limited company for ensuring that the required company documents are filed with Companies House? a. The finance director. b. The finance director and the company secretary. c. The managing director. d. All of the directors

d. All of the directors

A company is looking to list as a public limited company. If they currently have issued share capital of £23,000, how much additional allotted share capital must they have? a. £50,000. b. £27,000. c. £17,000. d. £20,000.

b. £27,000.

The UK Risk Management Standard sets out the key elements of risk analysis. These include the following, EXCEPT: a. risk description. b. risk estimation. c. risk mitigation. d. risk identification.

C. Mitigation

Under the Companies Act 2006, which firm must have a statutory external audit by a registered auditor? a. Company D that has net assets of £6m, 40 employees, and a turnover of £4m. b. Company B that has net assets of £4m and has 40 employees. c. Company C that has a turnover of £11m and has 100 employees. d.Company A that has a turnover of £9m, 80 employees, and has net assets of £4m

C. Company C that has a turnover of £11m and has 100 employees.

A public limited company which has a year end of 31 December must file its accounts by the following: a. 30 September. b. 31 December. c. 30 June. d. 31 March

c. 30 June

A UK listed insurer also has a USA stock exchange listing. In addition to UK corporate governance requirements, it will also need to comply with the requirements of the: a. Sarbanes-Oxley Act 2002. b. AMF Annotated Corporate Governance Code for Mutual Insurers. c. European Systemic Risk Board. d. Corporate Governance Principles and Recommendations.

A. Sarbanes-Oxley Act 2002

An individual's role is to set policy, monitor controls and check adherence to it. Where is this role most likely to fall within the 'three lines of defence' model of risk management? a. The third line of defence. b. The risk committee. c. The first line of defence. d. The second line of defence.

d. The second line of defence

Which body is responsible for monitoring and enforcing UK data protection laws? a. The PRA. b. The European Union. c. The FCA. d. The Information commissioner's Office.

d. The Information commissioner's Office.

An insurer's competitor has just announced that it is withdrawing from a market segment. Using the SWOT model, this would most likely be regarded as a[n]: a. weakness. b. strength. c. opportunity. d. threat.

c. opportunity.

Under the Solvency II rules, what is a calculation kernel? a. The model used in the quantification of capital requirements for all risk categories. b. The calculation used to establish an insurer's potential liabilities. c. The model used to establish potential reputational risk. d.The calculation used to estimate the future claims experience.

A. The model used in the quantification of capital requirements for all risk categories.

What is a key benefit to an insurer if it enters into a 'managing general agent' arrangement with a third party? a. Improved sales by using the purchasing power of the third party. b. Access a potential revenue stream without having to commit staff and resources to it. c. Reduced costs by benefiting from lower costs off-shore. d. Speed up the response to customers' needs.

b. Access a potential revenue stream without having to commit staff and resources to it.

What type of business asset would NOT typically be used to fund the business? a. Shareholders' funds. b. Premiums. c. Dividend payments. d. Claims reserves.

c. Dividend payments.

An insurer has just had a serious fire at its data processing plant that resulted in the premises being uninhabitable for a six week period. Which department would play a central part in executing its business recovery plan? a. Facilities management. b. Human resources. c. Compliance. d. Internal audit.

a. Facilities management.

in claims management, a third-party administrator [TPA] differs from a loss adjuster in that the TPA: a. deals with all aspects of claims management. b. just deals with the assessment of claims. c. just deals with the reserving elements. d. deals with just the claims file and documentation elements.

a. deals with all aspects of claims management.

If a senior manager within internal audit identifies breaches of internal controls, what action is he most likely to take? a. Record the breaches and escalate these to the external auditors. b. Record the breaches and make recommendations to line management. c. Record the breaches and report these to the regulator. d. Record the breaches and refer them to risk management.

b. Record the breaches and make recommendations to line management.

A risk assessment rating framework assesses risks based on: a. impact and probability. b. probability and severity. c. impact and severity. d. probability and value.

a. impact and probability.

Businesses will typically document the risks to the business that have been analysed and allocated a risk rating. What is this known as? a. Risk report. b. Risk heat map. c. Risk register. d. Risk ranking.

c. Risk register.

Post-Brexit, what solvency requirements are UK insurers subject to, if any? a. There is no obligation to comply with the Solvency II requirements but a small number still do. b. They must fully comply with the Solvency II requirements. c. The Solvency II requirements no longer apply and have been replaced by alternative PRA rules. d. There is no obligation to comply with the Solvency II requirements but many still do.

b. They must fully comply with the Solvency II requirements.

Who is LEAST likely to be interested in the accounts of a regional insurance broker? a. Financial analysts. b. The PRA. c. The FCA. d. Tax authorities.

b. The PRA.

A UK insurance company's annual report should include three main financial statements. These would NOT include: a. the cash flow statement. b. an income statement. c. the balance sheet. d. management accounts.

d. management accounts

What accounting standards must a UK insurer listed on the London Stock Exchange use? a. UK-adopted International Financial Reporting Standards [IFRS]. b. Those prescribed by the PRA. c. UK Generally Accepted Accounting Principles [UK GAAP]. d. Companies Act 2006.

A. UK-adopted International Financial Reporting Standards [IFRS].

A company buys an asset worth £10,000, which has a useful life expectancy of five years. Using straight-line depreciation, what will it be worth in three years, assuming there is no scrap value? a. £4,000. b. £2,000. c. £10,000. d. £6,000.

a. £4,000

What would be an example of a 'non-current liability'? a. A five year bond issue. b. Goodwill. c. Trade creditors. d. A bank overdraft.

a. A five year bond issue.

The accounts of an insurer will differ from that of an insurance broker as the insurer's accounts will include details of: a. taxation. b. claims incurred net of reinsurance. c. gross income. d. operating expenses.

b. claims incurred net of reinsurance.

This type of accounting information primarily focuses on the future and is designed to help management make day-to-day decisions based on forecasts and projections. What is being described? a. Profit and loss statement. b. Cash flow statement. c. Financial accounting. d. Management accounting.

d. Management accounting.

An insurance broker has commission income of £1m, investment income of £50,000, salaries of £500,000, other expenses of £100,000 and finance costs of £30,000. What is their profit before taxation? a. £450,000. b. £400,000. c. £370,000. d. £420,000.

d. £420,000.

Mohammed works in a department which uses zero-based budgeting; Lynn in one that sets an annual budget. The approach to budgeting for Lynn is different in that: a. senior managers are likely to be involved with Lynn setting her budgets whereas Mohammed is likely to agree his with his key customers. b. only Lynn will have to justify her expenditure. c. her budget is usually based on the current level of activity and adjusted to reflect changes in the business. d. she will be assumed to have no budget and be expected to demonstrate how the budget will be spent.

c. her budget is usually based on the current level of activity and adjusted to reflect changes in the business.

Over an accounting period, a company has sales of £100,000 plus VAT and costs of £60,000. What is its gross profit? a. £65,000. b. £60,000. c. £15,000. d. £40,000.

d. 40,000

A company works on an accrual accounting basis. If it sells a product on the 1 September, invoice for it on 10 September, have 15 days payment terms and receive payment on 1 October, when would the payment be regarded as received? a. 1 September. b. 25 September. c. 1 October. d. 10 September.

a. 1 September.

A UK listed firm prepares their accounts in accordance with the International Financial Reporting Standards. If the directors do NOT believe this provides an accurate picture of the company's trading position, what must they do? a. Continue to follow the standards but provide an explanation of areas they feel should be more fully explained. b. Identify a more appropriate set of standards to use. c. Depart from the standards and provide detailed disclosures why. d. Agree any alternative basis with HMRC first.

c. Depart from the standards and provide detailed disclosures why.

There are reduced presentation and disclosure requirements for small entities in FRS 102. These would apply to which one of these non-insurance firms? a. Fluffs Ltd, which has a turnover of £16m, employs 85 staff and has total assets of £3m. b. H&H Ltd, which has a turnover of £6m, employs 65 staff and has assets of £1m. c. Megga Ltd, which has a turnover of £16m, employs 145 staff and has total assets of £4m. d. Tubbs Ltd, which has a turnover of £12m, employs 48 staff and has assets of £8m.

b. H&H Ltd, which has a turnover of £6m, employs 65 staff and has assets of £1m. Financial reporting for small and micro entities A small entity is one that satisfies any two of the following: * Turnover less than £10.2m. * Total assets less than £5.1m. * 50 employees or less. A micro entity is one that satisfies any two of the following: * Turnover less than £632,000. * Total assets less than £316,000. * 10 employees or less.

Under the Companies Act 2006, directors of UK incorporated businesses must not approve financial statements unless they are satisfied they are: a. fair and reliable. b. true and fair. c. accurate and compliant. d. beyond reasonable doubt.

b. true and fair.

When preparing accounts, the accrual accounting basis: a. treats the business as a going concern. b. treats income as revenue when it is earned rather than when the cash is received. c. is the only accounting basis allowed under the International Financial Reporting Standards. d. only applies to insurance companies.

b. treats income as revenue when it is earned rather than when the cash is received.

Which body is currently the UK's main independent regulator of corporate financial reporting and governance? a. Financial Reporting Council. b. International Accounting Standards Board. c. Accounting Regulatory Committee. d. The Accounting Board.

a. Financial Reporting Council.

If a public company fails to meet the Financial Reporting Council's [FRC] Board requirements, which FRC Committee can seek an explanation from the company's directors? a. The Remuneration Committee b. The Audit Committee. c. The Conduct Committee. d. The Codes & Standards Committee.

c. The Conduct Committee. The FRC’s Conduct Committee seeks to ensure that the provision of financial information by public and large private companies complies with relevant reporting requirements The Conduct Committee reviews the directors’ reports and accounts of public and large private companies for compliance with the law. It also keeps under review interim reports of all listed issuers and annual reports of certain other non-corporate listed entities.

A local firm of incorporated insurance brokers has a turnover of £450,000 and assets of £150,000. When preparing its accounts, what accounting standards is it most likely to follow? a. Financial Reporting Standard for small entities. b. UK Generally Accepted Accountancy Principles. c. Financial Reporting Standard for micro entities. d. Those set out in the Companies Act 2006

c. Financial Reporting Standard for micro entities.

What is the standards-setting body called that is responsible for developing a single set of global accounting standards? a. The Financial Reporting Council. b. The International Accounting Standards Board. c. The IFRS Foundation. d. The Financial Reporting Review Panel.

c. The IFRS Foundation. he IFRS Foundation is a not-for-profit international organisation responsible for developing a single set of high-quality global accounting standards, known as IFRS Standards.

The main purpose of IFRS 17 is to: a. introduce accounting standards based only on the accrual basis. b. ensure insurance contracts are accounted for in a consistent manner. c. ensure that insurers maintain a minimum level of solvency. d. provide consistent information of an insurer's claims liabilities.

b. ensure insurance contracts are accounted for in a consistent manner.

Why typically are a number of methods used when projecting claim costs? a. To ensure a range of different scenarios are considered. b. To meet specific PRA requirements. c. To provide a safety margin, given the potential dangers of not getting it right. d. Because certain methods only work with a particular business line

a. To ensure a range of different scenarios are considered.

From a reserving point of view, why are liability claims difficult to predict? a. The potential number of this type of claim. b. The potential time they take to settle and the size of potential claims. c. The potential number of this type of claim and the typical delay in reporting this type of claim. d. It is not possible to reinsure against this type of risk.

b. The potential time they take to settle and the size of potential claims.

The uncertainty over setting an appropriate level of claims reserve is influenced by: a. unanticipated changes to future claims payment patterns. b. changes to the risk profile of the business. c. the future costs of reinsurance. d. anticipated future investment returns.

a. unanticipated changes to future claims payment patterns.

When calculating the 'incurred but not reported' figure for an insurer, what factor would NOT be taken into account? a. Number of anticipated claims in a reporting period. b. Claims inflation each year. c. Anticipated investment returns. d. Average cost of claims.

c. Anticipated investment returns.

The 'incurred but not reported' test is important for insurers because it: a. calculates the potential investment returns obtainable by the insurer in a particular financial period. b. calculates the likely claims costs in a particular financial reporting period. c. estimates the rate of growth associated with particular business lines. d. estimates future potential claims losses.

b. calculates the likely claims costs in a particular financial reporting period.

Which method is most likely to be used when determining the claims exposure for pollution risks? a. Bornhuetter-Ferguson. b. Exposure-based method. c. Loss ratio method. d. Average claims costs.

b. Exposure-based method.

For what class of insurance business is it most difficult to estimate claims reserves? a. Accident and sickness. b. Property. c. Motor. d. Employers' liability.

d. Employers' liability.

Data on claims is generally collected on a period known as an incident year. This is also known as a[n]: a. claims year. b. reporting period. c. financial year. d. accident year

d. accident year

What will be the key impact on an insurer that underestimates its future claims reserve? a. Overall profitability will always increase. b. Underwriting profits will reduce. c. Overall profitability will always reduce. d. Underwriting profits will increase.

b. Underwriting profits will reduce.

Within insurance, reserving is most closely associated with: a. underwriting. b. marketing. c. reinsurance. d. claims.

d. claims.

What part of the Solvency II requirements does an own risk and solvency assessment [ORSA] fall under? a. Pillar 3. b. Pillar 4. c. Pillar 1. d. Pillar 2.

d. Pillar 2. Pillar 1 – Financial requirements. This applies to all firms and considers key quantitative requirements, including own funds, technical provisions and calculation of the Solvency II capital requirements the solvency capital requirement (SCR) and minimum capital requirement (MCR) through either an approved full or partial internal model or the standard formula approach. * Pillar 2 – Governance and supervision. This includes an effective risk management system and prospective risk identification through the own risk and solvency assessment (ORSA). * Pillar 3 – Reporting and disclosure. Insurers are required to publish details of the risks facing them, capital adequacy and risk management. Transparency and open information are intended to assist market forces in imposing greater discipline on the industry.

Using the Standard & Poor’s ratings, Insurer 1 has a credit rating of A-; Insurer 2 has a rating of AA; Insurer 3 has a rating of BBB and Insurer 4 has a rating of BBB-. Rank them in order of security starting with the most secure first: a. Insurer 2; Insurer 1; Insurer 3; Insurer 4. b. Insurer 4; Insurer 1; Insurer 3; Insurer 2. c. Insurer 4; Insurer 3; Insurer 1; Insurer 2. d. Insurer 2; Insurer 3; Insurer 1; Insurer 4.

a. Insurer 2; Insurer 1; Insurer 3; Insurer 4.

Due to significant stock market falls and unexpectedly large claims, an insurer has seen its capital fall below the Solvency II minimum capital requirement [MCR]. As a result: a. the PRA would be forced to take enforcement action which is likely to include suspending the authorisation for the insurer. b. it must submit a plan for approval to the PRA explaining how it will restore its capital above the MCR within three months. c. it must automatically issue new share capital and/or increase its reinsurance arrangements to restore its capital above the MCR within a six month period. d. it must produce an internal action plan to restore its capital position and/or reduce its risk profile. This would include suspending any dividend payments.

b. it must submit a plan for approval to the PRA explaining how it will restore its capital above the MCR within three months.

When monitoring a company’s risk appetite, the PRA requires insurers to demonstrate that the risk of failure does not exceed: a. a one percent chance over a twenty-four month timescale. b. a one percent chance over a twelve-month timescale. c. one chance in two hundred over a twelve-month timescale. d. one chance in two hundred over a twenty-four month timescale.

c. one chance in two hundred over a twelve-month timescale.

What is the name given to the process insurers are required to undertake that identifies, assesses and manages the risks to their overall solvency level? a. The Lamfalussy process. b. Pillar three requirements. c. Stress testing. d. Own risk and solvency assessment.

d. Own risk and solvency assessment.

Under Solvency II, UK authorised insurers should be aware that they must meet: a. both the solvency capital requirement and the minimum capital requirement at all times. b. just the minimum capital requirement over a two year period. c. just the solvency capital requirement over a two year period. d. both the solvency capital requirement and the minimum capital requirement over a two year period.

a. both the solvency capital requirement and the minimum capital requirement at all times.

When establishing the financial strength of insurers, a rating agency will usually take into account: a. industry risk, staffing levels, operating performance, capital adequacy, liquidity, investments, underwriting profit, reputation and share price. b. only the strategy of the business, operating performance and capital adequacy. c. industry risk, strategy of the business, operating performance, capital adequacy and liquidity. d. only the industry risk, strategy of the business, capital adequacy and liquidity.

c. industry risk, strategy of the business, operating performance, capital adequacy and liquidity.

Why is the capital for Solvency II purposes different from the capital shown in an insurance company’s published accounts? a. Solvency II requires insurers to take into account the market value of their assets and deduct a specified risk margin. b. The published accounts will value the assets at the prevailing market value whereas Solvency II will require them to be valued on a rolling five year average. c. Solvency II requires insurers to take into account the quality of their assets, the risk of their liabilities and to add a risk margin. d. The published accounts will value the assets at the prevailing market value whereas Solvency II will require them to be valued not only on a rolling five year average, but also to apply a prescribed risk margin.

c. Solvency II requires insurers to take into account the quality of their assets, the risk of their liabilities and to add a risk margin.

f a UK authorised insurer suffers a capital shortfall, what action is it LEAST likely to take? a. Switch out of higher risk assets. b. Increase its reinsurance arrangements. c. Increase overall business volumes. d. Issue new shares.

c. Increase overall business volumes.

Reverse stress-testing can best be described as assessing the: a. scenarios most likely to render a business model unviable. b. key threats to the strategy and business model. c. key economic threats and risks faced by the business. d. scenarios that might threaten future business growth.

a. scenarios most likely to render a business model unviable.

The most common reason why a mutual insurance company would demutualise is to A. raise capital. B. reduce its regulatory burden. C. transact life assurance. D. undertake reinsurance business.

A. raise capital.

In what principal way has the UK’s legal system influenced the growth of the international insurance market? A. All insurance policies issued by UK insurers are subject to English law. B. English case law is recognised and its practice is followed in every country. C. International insurance disputes are always referred to English courts. D. Many international insurance case precedents have been developed under English law.

D. Many international insurance case precedents have been developed under English law.

he independent companies appointed by Lloyd’s underwriting members to underwrite business are known as A. brokers. B. franchisors. C. managing agents. D. syndicates.

C. managing agents.

When an insurance company seeks to play a role in society via sponsorship and community projects, this is known as A. an ethical standard. B. a principles based approach. C. a shareholder focus. D. a stakeholder perspective.

D. a stakeholder perspective.

A life assurance company aims to grow non-organically through horizontal integration. This can most commonly be achieved by A. acquiring a small reinsurance company. B. acquiring a specialist general insurance company. C. merging with a large broker network company. D. merging with another life assurance company.

D. merging with another life assurance company.

What is a public company legally obliged to do, which a private company is NOT? A. Appoint a company secretary. B. Comply with the Financial Conduct Authority’s Conduct of Business Rules. C. Purchase errors and omissions insurance. D. Register with Companies House.

A. Appoint a company secretary.

An insurer uses balanced scorecards as a strategic management tool. The main purpose of this is to A. calculate insurance premiums. B. calculate its financial strength. C. measure its performance. D. reduce its costs.

C. measure its performance.

In the context of management information systems, a control cycle is best described as the A. comparison against a plan and production of reports by exception. B. compilation and redistribution of an organisation’s collective skills. C. consultation between a manager and his team members. D. provision of conditions which will help a manager achieve his key objectives.

A. comparison against a plan and production of reports by exception.

An insurer’s Articles of Association must include A. details of the insurer’s technology management strategy. B. methods for building up relationships with customers. C. the regulations for the running of the insurer’s internal affairs. D. specific techniques to identify risk within the insurer.

C. the regulations for the running of the insurer’s internal affairs.

An international composite insurer is drafting its annual report. In accordance with the Companies Act 2006, what is the position regarding the inclusion of a chairman’s statement in this report? A. It is mandatory in all circumstances. B. It is only required if a directors’ report is also included. C. It is only required if a directors’ report is not included. D. It is optional in all circumstances.

D. It is optional in all circumstances.

An insurer has committed a breach, under the General Data Protection Regulation (GDPR). Within what maximum period must the breach be reported to the Information Commissioner’s office? A. 24 hours. B. 48 hours. C. 72 hours. D. 96 hours.

C. 72 hours.

Which function within an insurance company is primarily responsible for analysing potential mergers and acquisitions? A. Finance. B. Internal audit. C. Investment. D. Strategy.

D. Strategy.

To whom is financial accounting most useful? A. Financial analysts only. B. Internal management only. C. The regulator only. D. Stakeholders.

D. Stakeholders.

One of the main differences between financial accounts and management accounts is that only A. financial accounts are legally required. B. financial accounts are produced on a calendar year basis. C. management accounts are a useful indication of liquidity. D. management accounts are required to be audited.

A. financial accounts are legally required.

Which document best gives an indication of a company’s liquidity? A. An auditor’s report. B. A cash flow statement. C. A directors’ report. D. An income statement.

B. A cash flow statement.

A company purchased a machine with a useful life of eight years for £24,000. Its residual value at the end of this period is estimated to be £2,000. When using straight line depreciation, how much depreciation is shown in the accounts solely for year two of this period? A. £2,750 B. £3,000 C. £5,500 D. £6,000

A. £2,750

An item has been inserted in a company’s balance sheet in respect of machinery. Under which heading will this normally appear? A. Current assets. B. Current liabilities. C. Non-current assets. D. Non-current liabilities.

C. Non-current assets.

The internal rate of return is most commonly used to measure the A. constraints that departments are working under. B. viability of undertaking future projects. C. reduction in yield resulting from external costs. D. reduction in yield resulting from fixed costs.

B. viability of undertaking future projects.

In addition to inflation, what external influence should an insurer primarily take into account when calculating a personal injury claim reserve? A. Actuarial premium rate increases. B. Frequency of catastrophe claims. C. Market share of liability business. D. Recent claim litigation awards.

D. Recent claim litigation awards.

When reserving for claims under long-tail insurance classes, the amounts are most commonly discounted to allow for A. Corporation Tax. B. cost savings. C. investment income. D. market risk.

C. investment income.

Which financial ratio gives an indication of an insurer’s underwriting year performance? A. Claims ratio. B. Combined ratio. C. Credit turnover ratio. D. Current ratio.

B. Combined ratio.

D. stock.

Which type of activity in the Standard and Poor’s insurance ratings framework is most likely to be classified as a modifier? A. Committee voting. B. Enterprise risk management. C. Gearing ratio analysis. D. Industry and country risk.

B. Enterprise risk management.

Who arranges for a credit rating agency to produce a financial security rating on an insurance company? A. The external auditors. B. The Government. C. The insurance company. D. The regulator.

C. The insurance company.

An insurer intends to assess its position via a use test. This forms part of the rules relating to A. capital adequacy. B. claims reserves. C. internal audit. D. risk tolerance.

A. capital adequacy.

A UK insurer has recently merged with a US-based insurer to form an international operation with its head office in London. The two books of business are uncorrelated, which was a deliberate merger strategy by both companies. The UK and US insurers have significantly different information technology (IT) platforms which will need to be reviewed. Matt leads the IT Department for the UK insurer and Adam the IT Department for the US insurer. In their initial discussions, both Matt and Adam agree that an external server farm should be considered to improve efficiency. The new organisation plans to fund part of this IT project from reserves. They also intend to recommend a plan to rationalise their departments in the newly-formed organisation. Matt operates an open door policy and Adam a hierarchical style of management. 1. The strategy behind the formation of the new organisation indicates that the main focus was A. an increased presence in a niche market. B. an investment opportunity in global equities. C. to reduce its overall solvency capital requirement. D. to take full control over sources of supply. 2. The main difference between the management styles of Matt and Adam is that A. Adam is more focused than Matt on building team spirit and morale. B. Adam is more likely to consult his staff than Matt. C. Matt will be seen as being more approachable than Adam. D. Matt will be seen as being more autocratic than Adam. 3. In respect of the new organisation, a statutory external audit will A. be legally required to ensure that management accounts reflect the combined organisation. B. be legally required to ensure that the financial accounts truly reflect the combined organisation. C. only inspect the UK insurer’s records. D. only inspect the US insurer’s records. 4. What are the implications of the new organisation using a server farm? A. The current servers used by each organisation will be completely compatible. B. Daily automatic data backup will no longer be necessary. C. The data held by each company will be consolidated and cleansed by an independent server provider. D. Server storage space will be transferred to independent premises 5. What is the consequence of using some of the reserves to fund the IT project? A. Any subsequent increase in profits may pass to shareholders as dividends. B. The level of current liabilities will be increased. C. The level of gearing will be reduced. D. Net current assets will be depleted.

1. C. to reduce its overall solvency capital requirement. 2. C. Matt will be seen as being more approachable than Adam. 3. B. be legally required to ensure that the financial accounts truly reflect the combined organisation. 4. D. Server storage space will be transferred to independent premises 5. A. Any subsequent increase in profits may pass to shareholders as dividends.

Leo is the finance director of an insurer. The insurer, a stand-alone company, has recently purchased a new company which is now a subsidiary company. Both the insurer and the new subsidiary use claims development tables under the International Financial Reporting Standards (IFRS) requirements. The insurer now has access to capital from this new subsidiary company. Leo has been asked by an investor to clarify the position regarding the insurer’s capital requirements on an ongoing basis. The insurer’s financial data indicates that, over three years, the combined ratio has changed from 101.2% to 99.7%. 1. What will Leo’s activities most likely include? A. Calculation of individual claims reserves. B. Identifying dependencies through flow process analysis. C. Preparation for reviews by rating agencies. D. Pricing of new insurance products. 2. How will the recent acquisition of the subsidiary be shown on the insurer’s cash flow statement? A. As a cash inflow from financing activities. B. As a cash inflow from investment activities. C. As a cash outflow from financing activities. D. As a cash outflow from investment activities. 3. The use of claims development tables provides valuable information about the A. ability to charge higher prices. B. level of unrealised gains and losses. C. nature of breaches of internal controls. D. prior estimates of outstanding amounts. 4. In answer to the investor’s query regarding capital requirements on an ongoing basis, Leo should explain that A. all financial statements must be assessed and viewed on a consolidated basis. B. appropriate adjustments may be needed to satisfy the regulator. C. provided all the figures are included on the insurer’s balance sheet, no additional issues arise. D. there will be no additional regulatory requirements provided that no trading takes place between the two companies. 5. The change in the combined ratio is most likely to indicate that the insurer has A. increased its administration expenses. B. increased its long-term borrowing. C. improved its investment returns. D. improved its underwriting

1. C. Preparation for reviews by rating agencies. 2. D. As a cash outflow from investment activities. 3. D. prior estimates of outstanding amounts. 4. B. appropriate adjustments may be needed to satisfy the regulator. 5. D. improved its underwriting

Tim is the supervisor of a team in an insurer’s internal audit department. He involves as many team members as possible when making decisions. Two new employees have recently joined the team. The new team members are experienced in the areas of customer complaints and information technology security management. The insurer’s culture is to keep services in-house as far as possible. The insurer is considered to be a large company and Bev has been appointed to its audit committee. Bev seeks to understand the full financial position in respect of the insurer and regularly checks the usual financial ratios. The insurer has undertaken a liquidity ratio calculation and the result is lower than the same calculation undertaken last year. 1. What management style does Tim operate? A. Autocratic. B. Democratic. C. Hierarchical. D. Paternalistic. 2. The changes to personnel in Tim’s team are most likely to have been driven by A. an increase in the number of themed reviews in the audit plan. B. the need to act as the point of contact for regulators. C. the need to report to both the audit committee chairman and more than one senior executive on report findings. D. a significant increase in outsourced reviews as decreed by the board of directors. 3. The Corporate Governance Code on audit committees requires that Bev will A. be a qualified actuary. B. be required to work under the guidance of the external auditor. C. regularly review the effectiveness of Tim’s team. D. require just one other person to work with her. 4. With regard to the various management reports that are produced in respect of the insurer, Tim’s team A. collates any required by the regulator. B. oversees the production of those required solely for management purposes. C. verifies any required by the regulator before they are sent. D. verifies their reliability and accuracy. 5. The result of the recent liquidity calculation indicates that since last year the insurer’s liquidity has A. become more volatile. B. worsened. C. improved. D. been unaffected.

1 - B. Democratic. 2 - A. an increase in the number of themed reviews in the audit plan. 3. C. regularly review the effectiveness of Tim’s team. 4. D. verifies their reliability and accuracy. 5. C. improved.

Zoe works for an insurer which is a wholly owned subsidiary of a bank. The insurer has recently started a major new sales campaign via the internet and the bank feels that the new campaign will offer significant benefits for its customers. The policies sold through this campaign will usually have monthly premium payments. Zoe acts in a first response role in the insurer’s claims department and is currently handling a household policy claim from Tom where significant property damage has occurred. Zoe’s friend, George, works at the same insurer in the finance department. Included amongst his tasks is the responsibility for raising debit notes. Due to significant expenditure on the insurer’s campaign, for which results are only just beginning to come through, the insurer’s return on equity (ROE) ratio is currently 6%. The credit rating agency has just finished assessing the insurer under Business Risk Profile. 1. The significant benefits to the bank’s customers of the new campaign run by the insurer are most likely to relate to A. the availability of non-standard classes of business. B. higher standards and wider availability of customer service. C. a range of options on cover and price. D. specifically tailored solutions for the individual customer. 2. Zoe’s specific role in respect of Tom’s claim is to A. ensure the claim is paid promptly. B. minimise the potential for further damage. C. obtain authority to make an interim payment. D. oversee the repairs process. 3. The credit rating agency’s assessment will have considered the insurer’s A. competitive position. B. enterprise risk management. C. government support. D. sovereign risk. 4. For what transactions will George raise debit notes? A. All amounts owed to the business by other parties. B. All monies owed by the business to other parties. C. Monies owing to reinsurers and for outstanding claims only. D. Premiums owed by policyholders only.Examination Guide 5. What does the insurer’s ROE of 6% indicate? A. The insurer is being charged a 6% interest rate on its long-term borrowings. B. The insurer is making a 6% profit relative to its capital. C. The insurer is obtaining a 6% interest rate on its instalments. D. A shareholder is making a 6% profit before tax on his investment.

1 - C. a range of options on cover and price 2 - B. minimise the potential for further damage. 3 - A. competitive position. 4 - A. All amounts owed to the business by other parties. 5 - B. The insurer is making a 6% profit relative to its capital.

Mick is a supervisor in an insurer’s customer service department. He has received a complaint from a policyholder, Meg, regarding the use of her personal data by the insurer’s outsourced call centre in India. She does not think this centre has any right to know her personal details. Mick is able to verify that the correct procedure has been followed. Mick is collating data for a review of activities against key performance indicators (KPIs). Most of this data relates to effort-oriented KPIs, but one particular measure causing concern represents the ‘bottom line’. Mick has referred this concern to management, who are assessing appropriate action to be taken in accordance with the second line of defence. The insurer uses an activity-based costing system. Mick’s department is regarded as a profit centre for this purpose. The following financial data is available in the insurer’s accounts: Claims £80,000,000 Expenses £12,000,000 Acquisition Costs £17,000,000 Earned Premium Net of Reinsurance £110,000,000 1. Mick’s confirmation that the correct procedure has been followed is most likely to be due to A. appropriate regulatory approval for use of the call centre. B. the choices made in the insurer’s data protection registration. C. the level of training given to the employees in the call centre. D. Meg having given her express consent in her original application. 2. The KPI measure causing concern to Mick is most likely to be A. the number of complaints resolved within a planned timeframe. B. a reduction in market share. C. a significant increase in staff turnover. D. staff failing to respond to surveys on staff relations. 3. Following the referral from Mick, what action should be taken by the insurer? A. Determine changes required to reduce the level of the problems. B. Discipline the staff concerned. C. Disclose the issue to the regulator. D. Implement a recovery plan. 4. Under the activity-based costing system used by the insurer, Mick’s department will A. be allocated a fixed cost per annum by a central department. B. be invoiced by a central department on a cost per unit basis. C. charge other departments a fixed cost per annum. D. operate a zero-based budgeting approach.Examination Guide 5. The insurer’s combined ratio is A. 83.63% B. 88.18% C. 99.09% D. 100.91%

1 - D. Meg having given her express consent in her original application. 2 - B. a reduction in market share. 3 - A. Determine changes required to reduce the level of the problems. 4 - B. be invoiced by a central department on a cost per unit basis. 5 - C. 99.09%

A shareholders’ liability under a proprietary company is A. 50% of the nominal value of their shareholding. B. the nominal value of their shareholding. C. 50% of the total liabilities of the company. D. unlimited.

B. the nominal value of their shareholding.

Two factors that have allowed the City of London to develop into an international insurance centre are A. highly qualified personnel and office space both being available at competitive prices. B. the high number of domestic insurers and a lack of foreign insurers. C. the growth in numbers of both direct insurers and aggregators. D. white-labelling products being available and the growth in the number of tour operators.

A. highly qualified personnel and office space both being available at competitive prices.

B. insurer Y’s aim is to be regarded as a centralised business.

A. Competitively-priced products.

Which distribution channel for insurance most commonly offers white-labelled products? A. Aggregators. B. Intermediaries. C. Retailers. D. Travel agents.

C. Retailers.

D. technical pricing of new and existing products.

A. development of new insurance products over a 2-year period.

C. key risk indicator. Key risk indictors - this is where key risks are reviewed at regular intervals. These can include: - IT Downtime - Examples of Fraud (internal and external) - Complaints - Property oss or damage - Employee injury or illness

C. Only those listed on the London Stock Exchange.

D. All those which are registered with Companies House.

B. The income statement shows the results of transactions during the accounting period and the balance sheet shows the financial position at a particular point in time.

C. A managing general agent.

D. To report the financial position to all stakeholders.

D. need not be audited by external auditors.

A. Balance sheet.

B. cost of an asset apportioned over the financial period during which the company will benefit from the use of that asset.

A. earned an amount of income which is balanced by an increase in cash.

A balance sheet records a company’s A. gross cash flow. B. gross financial position. C. net cash flow. D. net financial position.

D. net financial position.

D. Projection of paid claims.

C. investment income is being taken into account.

A. Long-term borrowings divided by shareholders’ equity.

Which financial ratio gives an indication of an insurer’s underwriting year performance? A. Claims ratio. B. Combined ratio. C. Credit turnover ratio. D. Current ratio.

B. Combined ratio

D. quality and level of capital required to run the business.

C. a measure of its ability to pay claims.

A. 1 chance in 200 over a 12-month timescale.

Mark is employed as a risk manager in the London office of a large multinational retail group, which is listed on the London Stock Exchange. Mark has some shares in the company. The multinational retailer’s main offices are located in London with subsidiary companies based in New York, Paris, Frankfurt and Dubai. The London office has arranged to transfer part of the group insurance risk to an insurer, owned by the group, based in Dublin. The annual accounts of the London office are compiled each year to International Financial Reporting Standards. On 5 May Mark is on an insider list and learns that the London office is undergoing serious financial issues. The company is looking to sell off overseas businesses, including the New York office, to release equity. The London office is a large multi-storey office block purchased using a bank loan. The company have agreed to pay back the loan over the next 15 years. 1. The insurance company that is based in Dublin is most likely to be a A. captive company. B. mutual company. C. reinsurance company. D. takaful company. 2. Where, if at all, in the annual report accounts, must a statement appear from the London based chairman of the retail group? A. It must form part of the balance sheet. B. It must form part of the directors’ report. C. It must form part of the income statement. D. It is not required. 3. Under which Act would it be a civil offence if Mark were to sell his shares following information obtained in May? A. Bribery Act 2010. B. Companies Act 2006. C. Financial Services and Markets Act 2000. D. Proceeds of Crime Act 2002. 4.What scope of risks within risk management is likely to be affected by the London office’s financial issues and the need to sell off the New York office? A. Credit. B. Group. C. Market. D. Operational. 5. The bank loan used to purchase the London office building would be classified on the company balance sheet as being a A. current asset. B. current liability. C. non-current asset. D. non-current liability.

1. A. captive company. 2. D. It is not required. 3. C. Financial Services and Markets Act 2000 4. B. group 5. D. non-current liability

Joe is a business manager at a UK-based, publicly-quoted insurance company. Joe has been asked by the Board to clarify a number of matters relating to the use of information within the company and some associated points. The company has a vast amount of information that has been collected by them including policy and loss data. Consideration is being given to who should have access to such information. The company also reuses information especially in relation to the provision of underwriting administrative services. Consideration is being given to where this best fits. Given the importance of information within the company, it has been deemed essential that the Information Technology (IT) department have a broad role, working closely with the business. Consideration is being given as to what the IT department should therefore be involved in. The company has been making satisfactory profits and there has been debate about the information shareholders receive in relation to the distribution of profits and dividend payments. The company receives information in the form of a financial strength rating from a rating agency. However, some executives have questioned the value of this and the rating agency process. 1. Joe should advise the Board it is important that the policy and loss data is A. restricted to the use of the chief actuary only. B. never used again as this is not permitted by the Data Protection Act 1988. C. readily accessible by all appropriate employees. D. readily accessible by all stakeholders. 2. Joe should advise the Board that the underwriting administration services information currently in use is most commonly known as a A. bespoke benchmarking system. B. codified knowledge management system. C. learning management system. D. personalised knowledge management system. 3. Joe should advise the Board that if the IT department is to fulfil its role within the company, it must A. carry out themed audits of the IT area. B. ensure all employees carry out controlled functions. C. make a proactive contribution to the development of business strategy. D. procure offices to meet the accommodation needs. 4. Joe should advise the Board that shareholders are given information on dividend payments which recognises that A. only individual and personal messages are supplied to shareholders on the reasons for payment levels. B. payments are never made when the underlying value of the company’s shares has increased. C. payments increase on an automatic basis year-on-year. D. shareholders’ payments may be held back to fund future expansion. 5. Joe should advise the Board that a strong rating from a ratings agency A. assists the insurance broker who distributes the company’s insurance products to decide on their risk appetite when placing business. B. is a highly-subjective process as it uses little quantitative and qualitative information. C. is only ever provided on publicly-available information. D. will have no connection with the company’s earnings stability or its ability to grow capital

1. C. readily accessible by all appropriate employees. 2. B. codified knowledge management system. 3. C. make a proactive contribution to the development of business strategy. 4. D. shareholders’ payments may be held back to fund future expansion. 5. A. assists the insurance broker who distributes the company’s insurance products to decide on their risk appetite when placing business

1. A. Cash flow from financing activity. 2. A. Balance sheet. 3. D. Profit after tax and capital. 4. B. liabilities to cash and investments. 5. A. Building the business may take a long time to achieve.

1. D. vertical integration 2. C. Strategic. 3. B. ensuring that sufficient capital and reserves are available to meet solvency requirements. 4. D. record the financial impact of events whereas management accounts provides forecasts. 5. A. bottom-up flexible budgeting.

Tim is the newly-appointed chief executive officer of an insurance company. He has been tasked with turning the business around to a more profitable concern as it has been experiencing difficult trading conditions. Tim leads the Board of the company, which comprises the usual executive roles. He realises that a radical shake up of the business is required which, for a time, will require new working regimes and tight deadlines if the new targets set by the Board are to be achieved. Currently recorded written premiums are £90,000,000 and earned premiums are £95,000,000. When conducting a benchmarking exercise against similar-sized competitors, it is found that whilst the combined ratio compares favourably, the company’s return on capital employed is significantly lower. The sales director suggests that the claims function could be outsourced to a specialist-claims handling service provider under the terms of a service level agreement stipulating that compliant standards of service are maintained. In doing so this would free up resources to enable the company to concentrate on core activities and that new business could grow significantly if the current 30-day period of credit given to brokers was extended to 90 days. 1. Which management style would be best for Tim to adopt during this period of radical change? A. Autocratic. B. Consultative. C. Open door. D. Paternalistic. 2. What is the most likely explanation for the company’s return on capital employed being lower than its competitors? A. Excessive administrative expenses. B. High reinsurance costs. C. Over-reserving of outstanding claims. D. Poor investment returns. 3. If the company were to adopt both of the sales director’s proposals, what would be the most likely consequence? A. The additional growth will always result in the acceptance of poor quality business. B. The additional business will stretch existing operational resources. C. Compliance will become less demanding. D. Financial resources will be impaired. 4. Who would be responsible for compliance of the claims function if the activity was outsourced to a specialist claims-handling company? A. The Financial Conduct Authority would be solely responsible. B. The insurer would be solely responsible. C. The specialist claims handler would be solely responsible. D. The insurer and the specialist claims handler would be jointly and severally responsible. 5. What is evidenced by the current levels of written premiums and earned premiums? A. A declining book of business. B. Excessive business acquisition costs. C. Increased reinsurance costs or cover. D. Strengthening of claims reserves.

1. A. Autocratic 2. D. Poor investment returns. 3. D. Financial resources will be impaired. 4. B. The insurer would be solely responsible. 5. A. A declining book of business.

Which type of activity in the Standard and Poor’s insurance ratings framework is most likely to look at the environmental framework, i.e new entrants, volatility of the sector, country risk and the potential 'tail to liabilities of catastrophic losses? A. Economic and Industry risk B. Enterprise risk management. C. Industry and country risk. D. Investments

A. Economic and Industry risk

Which type of activity in the Standard and Poor’s insurance ratings framework is most likely to look at the business in terms of competitive strengths and weaknesses? A. Operating Performance B. Enterprise risk management. C. Competitive position D. Management and corporate strategy

C. Competitive Position

Which type of activity in the Standard and Poor’s insurance ratings framework is most likely to look at the business in terms of the quality and credibility of the insurers senior management team? A. Operating Performance B. Management and corporate strategy C. Capital adequacy D. Enterprise Risk Management

B. Management and corporate strategy

Which type of activity in the Standard and Poor’s insurance ratings framework is most likely to look at the business in terms of risk mitigation, identifiability of risk, internal models, use tests? A. Enterprise Risk Management B. Economic and Industry risk C. Operating performance D. Capital adequacy

A. Enterprise Risk Management (ERM)

Which type of activity in the Standard and Poor’s insurance ratings framework is most likely to look at the business in terms of performance ratio's (Loss, expense, combined, return on equity ratios etc) ? A. Operating performance B. Enterprise Risk Management C. Financial flexibility D. Capital adequacy

A. Operating Performance

Which type of activity in the Standard and Poor’s insurance ratings framework is most likely to look at the business in terms of how the insurers investment strategy fits its liability profile? A. Financial Flexibility B. Investments C. Competitive position D. Capital adequacy

B. Investments

Which type of activity in the Standard and Poor’s insurance ratings framework is most likely to look at the business in terms of the quality and level of capital required to run the business? A. Management and corporate strategy B. Liquidity C. Competitive position D. Capital adequacy

D. Capital adequacy

Which type of activity in the Standard and Poor’s insurance ratings framework is most likely to look at the business in terms of their ability to manage cash flows efficiently and easily borrow money if required? A. Liquidity B. Investments C. Competitive position D. Capital adequacy

A. Liquidity

Which type of activity in the Standard and Poor’s insurance ratings framework is most likely to look at the business in terms of their potential need for additional capital or liquidity in the future? A. Liquidity B. Economic and Industry Risk C. Financial flexibility D. Competitive position

C. Financial flexibility

How much invested assets do ABI hold? a. £1.7bn b. £6.2mn c. £1.80trn d. £5.21trn

c.£1.80trn

How much do UK insurers contribute in taxes? a. £14bn b. £12bn c. £2.1trn d. £300mn

b. 12bn

How many people are insured by the UK insurance industry? a. 600,000 b. 2,000,000 c.1,200,000 d. 300,000

d. 300,000

According to IMARC, the global Takaful market value is reached what number in 2020? a. £27.6bn b. £6.2mn c. £1.80trn d. £5.21trn

a. £27.6bn

which act removed the restriction that only Lloyds-authorised brokers could place business via managing agents with Lloyds syndicates? a. Companies Act 2006 b. Insurance Act 2015 c. Legislative Reform (Lloyds) Order 2008 c. UK Corporate Governance Code 2018

c. Legislative Reform (Lloyds) Order 2008

ethical standards are very important in the insurance industry, it is therefore crucial that all those who work in insurance follow a set of ethical standards. what guidance is there for this? a. UK Corporate Governance Code b. Insurance Act 2015 C. Code of ethics d. Companies Act 2006

c. Code of ethics

where are the rules and regulations relating to outsourcing detailed? a. FCA and PRA Handbook, section 8 b. UK Corporate Governance code, section 1 c. Insurance Act 2015 section 3 d.Code of ethics

a. FCA and PRA Handbook, section 8

In what part of the Solvency II requirements detail the expectations of insurer management of outsourced contracts? a. European Insurance and Occupational Pensions Authority (EIOPA) b. The FRA and PRA Handbook. c. Code of ethics d. Companies Act 2006

A. European Insurance and Occupational Pensions Authority (EIOPA)

fintech/Insutech are recent developments. In 2017 what was the sectors global investment estimated tobe? a. £27.6bn b. £6.2mn c. £30bn d. £5.21trn

c. £30bn

which of these is not included within the financial accounts that have to be submitted to companies house? a. balance sheet b. cash flow statement c. income statement d. directors report

b. cash flow statement

which of these do only quoted companies have to provide? a. balance sheet b. income statement c. directors report d. directors remuneration report

d. directors remuneration report

What is the biggest fine that the ICO - Information Commissioners Office can enforce for the most serious of data breaches? a. GBP 17,000,000 / EUR 20,000,000 or 4% of the companies global turnover b. GBP 20,000,000 / EUR 25,000,000 or 10% of the companies global turnover c. GBP 40,000,000 / EUR 30,000,000 or 5% of the companies global turnover d. GBP 20,000,000 / EUR 15,000,000 or 2% of the companies global turnover

a. GBP 17,000,000 / EUR 20,000,000 or 4% of the companies global turnover

what guidance for internal control, risk management and related business reporting is there in place for listed companies for accounting periods on or after 01 October 2014? a. cadbury guide b. turnball guidance c. UK corporate governance code d.The Annotated corporate governance code for mutual insurers

b. turnball guidance

what was the UK corporate governance code derived from? a. the FCA handbook b. turnball guidance c. Cadbury report d. Listing rules

c. cadbury report

who published the guidance on board effectiveness? a. FCA (Financial Conduct Authority) b. FRC (Financial Reporting Committe) c. PRA (Prudential Regulation Committee d. UK Corporate governance Code

b.The FRC - the institute of Chartered secretaries and administrators developed this on the FRCs behalf

who administers the UK Listing Rules? a. The PRA b. The FCA c. ICO information commissioners office d. The Audit Committee

The FCA All publicly listed companies have to abide by these The listing rules dictate prospectus for a company seeking a listing for the first time via an IPO (Initial Public Offering). - quoted companies - also abide by the UK corporate governance code and IFRS standards

what is working capital a. the difference between current assets and current liabilities b. the difference between gross profit and net profit c. the difference between non-current assets and non-current liabilities d. the difference between claims paid and claims outstanding

a. the difference between current assets and current liabilities

How are assets employed calculated a. net profit + gross profit b. non-current liabilities + working capital c. current assets + working capital d. non current assets + working capital

d. non current assets + working capital = assets employed

what does a quoted company not need to include in their accounts: a. narrative report b. financial statements (cash flow, income statement and balance sheet) c.a strategic report d. management accounts

d. management accounts

MIXED QUESTIONS Flashcards

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