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Book1 Flashcards

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1
Q

What are the three broad types of UK insurers?

A

Composite (life + general), Life (long-term), General (non-life).

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2
Q

Why might a mutual demutualise?

A

To raise external capital (can’t issue shares as a mutual).

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3
Q

Who regulates prudential matters in the UK?

A

PRA (part of the Bank of England).

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4
Q

Who regulates conduct in the UK?

A

FCA (conduct, fair treatment, market integrity).

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5
Q

What is Lloyd’s (in structure)?

A

A marketplace of syndicates run by managing agents, overseen by the Corporation of Lloyd’s.

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6
Q

Horizontal vs vertical integration?

A

Horizontal = same stage (insurer+insurer); Vertical = different stages (insurer+broker).

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7
Q

Affinity/bancassurance means what?

A

Distribution via a partner brand/bank selling white-label insurance.

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8
Q

Name key stakeholders for an insurer.

A

Policyholders, shareholders, regulators, employees, creditors, brokers, rating agencies.

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9
Q

What is a captive insurer?

A

An insurer owned by (and primarily insuring) its parent group’s risks.

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10
Q

What is self-insurance?

A

Retaining risk internally instead of transferring to an external insurer.

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11
Q

What is Takaful?

A

Sharia-compliant mutual/co-operative form of insurance.

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12
Q

What is the London Market known for?

A

International and specialist risks centred around Lloyd’s and company market.

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13
Q

Which body issues the UK Corporate Governance Code?

A

Financial Reporting Council (FRC).

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14
Q

Listed companies must follow the Code how?

A

Comply or explain (report compliance or explain deviations).

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15
Q

Three lines of defence—line 1?

A

Business operations—own and manage risks.

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16
Q

Three lines of defence—line 2?

A

Risk management and compliance functions.

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17
Q

Three lines of defence—line 3?

A

Internal audit (independent assurance).

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18
Q

Audit committee’s primary role?

A

Oversee financial reporting and internal controls.

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19
Q

ICO breach reporting timeframe?

A

Notify ICO within 72 hours for high-risk personal data breaches.

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20
Q

Data must be… (GDPR principles)?

A

Accurate, lawful, secure, retained only as necessary.

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21
Q

Board’s role at a high level?

A

Set strategy and governance; oversee risk; ensure compliance.

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22
Q

Levels of management information?

A

Strategic (long-term), Tactical (departmental), Operational (day-to-day).

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23
Q

SMART stands for?

A

Specific, Measurable, Achievable, Relevant, Time-bound.

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24
Q

Balanced scorecard perspectives?

A

Financial, Customer, Internal processes, Learning & growth.

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25
Zero-based budgeting means?
Every cost justified from scratch each period.
26
Rolling budget means?
Continuously updated—add a new period as the last one ends.
27
Variance analysis is what?
Compare actual vs budget to identify and investigate differences.
28
What is activity-based costing used for?
Allocating overheads to activities/products for better cost insight.
29
Define financial accounting purpose.
Record, summarise, communicate performance/position to external users.
30
Define management accounting purpose.
Provide forward-looking, internal information for planning and control.
31
Accounting equation?
Assets = Liabilities + Equity.
32
Double-entry/duality means?
Every transaction has equal debit and credit effects.
33
Accruals basis means?
Recognise when earned/incurred, not when cash moves.
34
Matching concept means?
Match expenses to the revenues they help generate.
35
Prudence means?
Don’t overstate assets/income or understate liabilities/expenses.
36
Consistency means?
Use same methods year-to-year unless justified.
37
Materiality means?
Show detail if omission/misstatement could affect decisions.
38
Historical cost means?
Record assets/liabilities at original purchase cost.
39
Going concern means?
Prepare accounts assuming business continues trading.
40
Statement of financial position shows?
Assets, liabilities, and equity at a point in time.
41
Statement of profit or loss shows?
Income, expenses, and profit over a period.
42
Working capital formula?
Current assets – Current liabilities.
43
Straight-line depreciation formula?
(Cost – Residual value) ÷ Useful life (per year).
44
Cash flow statement sections?
Operating, Investing, Financing activities.
45
Example: operating cash flow for an insurer?
Premiums received; claims/expenses paid; tax paid.
46
Example: investing cash outflow?
Purchase of equipment; acquisition of a subsidiary; investments bought.
47
Example: financing cash flow?
Issue/repayment of debt or shares; dividends paid.
48
UPR stands for and means?
Unearned Premium Reserve—premium received for cover not yet provided (liability).
49
DAC stands for and means?
Deferred Acquisition Costs—acquisition expenses deferred over policy term (asset).
50
IBNR stands for and means?
Incurred But Not Reported—claims that have occurred but not yet reported.
51
Reinsurance recoveries shown as?
Asset (adjusted for reinsurer credit risk).
52
Outstanding claims represent?
Reported but not yet settled claims liability.
53
What does the cash flow statement show?
Actual cash in and out: the firm’s ability to pay bills in cash
54
UPR aligns with which principle?
Matching—recognise revenue as coverage is provided.
55
DAC aligns with which idea?
Deferral—match acquisition cost with the period of benefit (policy term).
56
IFRS consolidated reporting applies to?
Quoted/listed groups in the UK (IFRS as adopted in the UK).
57
UK GAAP core standard for companies?
FRS 102; insurance contracts under FRS 103.
58
Micro-entities may use which standard?
FRS 105 (simplified).
59
What did IFRS 17 replace and why?
Replaced IFRS 4 to standardise insurance accounting and improve comparability/transparency.
60
Contractural service margin meaning
Present value of unearned profit for future service.
61
IFRS 17: insurance revenue vs GWP?
Insurance revenue in P&L; GWP not in P&L (disclosed in notes).
62
IFRS 17: UPR is now presented as?
Liability for remaining coverage (separately identified).
63
IFRS 17: outstanding + IBNR sits where?
Liability for incurred claims.
64
IFRS 17: DAC presentation?
Deferred acquisition costs not presented as a separate asset.
65
Claims Development Tables (CDTs) are for?
Disclosing prior-year claims development transparently.
66
Why IFRS 17 bans equalisation/cat reserves?
Provisions for non-existing contracts at reporting date are not permitted.
67
IFRS 17: offsetting reinsurance allowed?
No—insurance liabilities not offset against reinsurance assets.
68
IFRS vs UK GAAP quick map?
Listed groups: IFRS; Others: UK GAAP (FRS102); Insurance contracts: FRS103; Micro: FRS105.
69
Similarities: Solvency II vs IFRS 17?
Both risk-/principles-based; best-estimate cash flows; discount rate reflects liquidity premium.
70
Purpose of accurate reserving?
Avoid overstating profit/solvency (under-reserving) or depressing profit (over-reserving).
71
Reserving methods—name two.
Chain-ladder (development) and Bornhuetter-Ferguson (blended).
72
Long-tail vs short-tail reserves?
Long-tail (e.g., EL) heavily IBNR-dependent; short-tail (e.g., motor PD) more straightforward.
73
Current ratio formula?
Current assets ÷ Current liabilities.
74
Quick ratio formula?
(Current assets − Stock) ÷ Current liabilities.
75
Debtor (receivables) days formula?
Trade receivables ÷ Sales × 365.
76
Creditor (payables) days formula?
Payables ÷ Purchases × 365.
77
Inventory (stock) days formula?
Inventory ÷ Cost of sales × 365.
78
Gearing ratio formula?
Long-term borrowings ÷ Shareholders’ equity × 100.
79
ROCE formula?
Profit before interest & tax ÷ (Share capital + Reserves + Borrowings) × 100.
80
ROE formula?
Profit after tax ÷ Shareholders’ equity × 100.
81
Good ROE (rule of thumb)?
Typically 15%–20% (market cycles affect).
82
Claims ratio formula?
Claims incurred (net) ÷ Earned premium (net) × 100.
83
Expense ratio formula?
Admin expenses ÷ Earned premium (net) × 100.
84
Commission ratio formula?
Acquisition costs ÷ Earned premium (net) × 100.
85
Combined ratio definition?
Claims + Expenses + Commission (each ÷ earned premium net) × 100.
86
Combined ratio <100% means?
Underwriting profit before investment income.
87
Receivables provide what risk?
Liquidity drag and credit risk if collections are slow.
88
Delaying payables too long risks?
Lost discounts; worse trade terms; reputational harm.
89
Which liquidity ratios does the booklet highlight?
Current ratio and quick ratio (acid test).
90
Key productivity/efficiency ratios named?
Receivables days, Payables days, Inventory days.
91
Top six ratios to assess an insurer?
Claims, Expenses, Commission, Combined ratio, ROE, Solvency coverage ratio.
92
Gearing risk for insurers—why sensitive?
Debt service must be paid regardless; higher leverage increases failure risk.
93
Outstanding claims/net assets ratio—why monitor?
Lower is safer; under-reserving can falsely improve it and store up future problems.
94
Solvency coverage ratio meaning?
Total eligible capital ÷ Solvency Capital Requirement (SCR).
95
Solvency II pillars?
Pillar 1 capital, Pillar 2 governance/ORSA, Pillar 3 disclosure/SFCR.
96
SCR confidence level?
99.5% over one year (≈1-in-200).
97
MCR confidence level?
Lower threshold c. 85% confidence.
98
What is ORSA?
Own Risk and Solvency Assessment—firm’s internal forward-looking solvency review.
99
What is SFCR?
Solvency and Financial Condition Report—public disclosure on risks, capital, solvency.
100
Who pays CRAs for a rating?
The insurer pays; CRA may still rate using public info even if insurer withdraws.
101
Board risk appetite typically sets what?
Acceptable risks, unacceptable risks, failure probability, max single-loss, target security, investment quality/diversity.
102
Solvency coverage target example in text?
Example: management target 130–160% (illustrative policy).
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