Questions -
Question 1 - You are a marketing manager for MC plc, an insurer, which provides a range of household and motor insurances. MC plc distributes these insurances through both their branch network and insurance brokers. Due to changes in the way customers buy insurance, MC plc have decided that it needs to sell insurance through an additional distribution channel. (a) Identify, with justification, the most appropriate additional distribution channel for MC plc. (4) (b) Recommend two actions that MC plc must take to effectively use the additional distribution channel you have identified in (a) above.
Question 2 - EJ plc, a general insurer, transacts a range of personal lines and small commercial insurances within a number of countries. EJ plc acquires management information and knowledge of its customers and potential customers from various sources. EJ plc has grown through the acquisition of other insurers and this has resulted in EJ plc having several different management information technology systems. These systems are not integrated. There has also been a reduction in EJ plc's capability to manage knowledge and information following several recent senior management resignations.
(a) Explain, with justification, two significant uses of management information for EJ plc in acquiring and retaining customers.
(b) Explain, with justification, four significant challenges EJ plc have in maximising the opportunities that can arise from the effective use of customer information and customer knowledge.
Question 3 - You are a risk manager for LRM plc, an insurer with offices in many countries. LRM plc's customer data is used by several business functions. The customer data is accessed by staff who work both in LRM plc's offices and remotely from the office locations. This data is also made available to selected companies who provide relevant insurance services to LRM plc's customers. LRM plc is aware that a competitor has suffered a cyber attack. This cyber attack has resulted in theft of the competitor's customer data. You have been tasked by the Board to review LRM plc's customer data security.
(a) Identify, with justification, two significant operational risks, associated with customer data security, for LRM plc.
(b) Recommend with reasons, four key risk indicators you would use to monitor customer data security, based on the two operational risks you have identified in (a) above.
Question 4 - You are an underwriter for CMA plc, a liability insurer. You have identified that your pricing for new and renewing business is inconsistent with your competitors' pricing. This inconsistency is altering the portfolio of business you underwrite and is negatively impacting on CMA plc's profitability. After analysis, you establish that the pricing inconsistency arises from inaccurate calculations of pure risk premiums.
(a) Identify, with justification, five reasons the pure risk premiums could be inaccurate.
(b) Explain, with justification, two of CMA plc's common functions that could assist you in setting accurate pure risk premiums.
Question 5 - PNE plc, an insurer, is evaluating a proposed delegated authority arrangement with BMU plc, an insurance broker. PNE plc has a number of existing delegated authority arrangements with insurance brokers. PNE plc only transacts delegated authority arrangements with insurance brokers that it considers financially secure. Following a request from PNE plc, BMU plc has provided the following information about its business:
|
YEAR
|
Million
|
|
Broking commission fees
|
2015
|
£20.00
|
|
2016
|
£19.20
|
|
cost of finance
|
2015
|
£0.35
|
|
2016
|
£0.45
|
|
Salaries of staff
|
2015
|
£11.00
|
|
2016
|
£12.00
|
|
Number of staff
|
2015
|
314
|
|
2016
|
280
|
|
Operation expenses
|
2015
|
£5.20
|
|
2016
|
£4.60
|
|
Trade receivables (money owed by customer)
|
2015
|
£5.00
|
|
2016
|
£4.00
|
|
Profit before taxation
|
2015
|
£1.50
|
|
2016
|
£1.19
|
a) Explain, with justification, based on the information above, five issues that need further investigation by PNE plc in relation to the proposed delegated authority arrangement with BMU plc.
b) Identify, with justification, five additional items of financial information that are essential for PNE plc in determining whether to enter a business relationship with BMU plc.
Question 6 - You are the Head of Claims for R&J plc, an insurer. There has been a recent flood affecting a large number of properties insured by R&J plc. This has resulted in the notification of a number of valid claims for property damage. Further claims from the recent flood are expected during the next two months.
The unearned premium reserve is calculated on a time on risk allocation basis, across each policy's period of insurance. R& J plc.'s financial year-end is in three weeks. It is expected that the total claims reserve for the recent flood will exceed the unearned premium reserve.
(a) Explain, with justification, how you would calculate the total reserve for these flood claims, given R&Jplc's upcoming financial year-end.
(b) Identify how the total claims reserve for this flood will be funded?
Question 7 - You are a commercial underwriter for a general insurer specialising in UK manufacturing businesses. You only insure financially secure businesses. An insurance broker has provided you with the following financial information on a client, DC plc, a UK manufacturer for whom they would like you to provide an insurance quotation. Balance sheet for DC plcas at 31/12/2016:
|
Balance Sheet
|
|
|
|
|
Assets
|
|
|
|
Non-Current Assets
|
|
|
|
Land
|
15,000.00
|
|
|
Buildings
|
8,000.00
|
|
|
Machinery
|
20,000.00
|
|
|
Total
|
43,000.00
|
|
|
Current Assets
|
|
|
|
Cash
|
1,000.00
|
|
|
Debtors
|
12,000.00
|
|
|
Stock
|
5,000.00
|
|
|
Total
|
18,000.00
|
|
|
Total Assets
|
|
61,000.00
|
|
|
|
|
Equity And Liabilities
|
|
|
|
Equity
|
|
|
|
Share Capital
|
10,000.00
|
|
|
Reserve Earning
|
5,500.00
|
|
|
Retained Earning
|
6,500.00
|
|
|
Total Equity
|
22,000.00
|
|
|
Current Liabilities
|
|
|
|
Creditors
|
20,000.00
|
|
|
Short Terms Borrowings
|
5,000.00
|
|
|
Total
|
25,000.00
|
|
|
Non-Current Liabilities
|
|
|
|
Long Terms Borrowings
|
14,000.00
|
|
|
Total
|
14,000.00
|
|
|
Total Equity And Liabilities
|
|
61,000.00
|
|
Income Statement
|
|
|
|
Revenue
|
75000
|
|
Cost of Sales
|
-45000
|
|
Gross Profit
|
30000
|
|
Administrative Expenses
|
-10000
|
|
Profit before Tax
|
20000
|
|
Tax Expenses
|
4000
|
|
Profit for the Period
|
16000
|
(a) Calculate, showing all your workings, the financial position of DC plc. Use one profitability ratio and three other appropriate non-profitability financial ratios.
(b) Analyse, based on your calculations in(a)above, whether DCplc is a suitable risk for you to insure.
(c) Identify, with justification, based on your analysis in(b)above, two concerns you need to discuss with the insurance broker.
Question 8 - You work in the actuarial function of SFplc, a large general insurer. SFplc has recently acquired TIDplc, a smaller general insurer. TIDplc has a portfolio of property and liability risks similar to SFplc's portfolio.
(a) Describe the two most significant actions that you would undertake to incorporate the acquisition of TIDplc.
(b) Explain how SFplc's internal model would be affected by the acquisition of TIDplc.
Question 9 - You are a newly appointed financial officer for KAHplc, a UK-based insurer, which underwrites commercial property and business interruption insurance. You are provided with the following income statements for KAHplc:
Income statements for the years ending 31st December
|
Income
|
2016
|
2015
|
|
|
|
|
Gross Written Premium
|
130,000.00
|
11,000.00
|
|
Outward Reinsurance Premium
|
-10,500.00
|
-6,000.00
|
|
Net Written Premium
|
119,500.00
|
104,000.00
|
|
Net Earned Premium
|
105,000.00
|
102,000.00
|
|
Net Investment Return
|
2,500.00
|
3,000.00
|
|
Total Income
|
107,500.00
|
105,000.00
|
|
|
|
|
|
|
|
Expenses
|
2016
|
2015
|
|
|
|
|
Gross Claims Incurred
|
-91,000.00
|
-65,000.00
|
|
Reinsurers Share
|
9,200.00
|
3,500.00
|
|
Claims Incurred Net of Reinsurance
|
-81,800.00
|
-61,500.00
|
|
Acquistion Costs
|
-24,700.00
|
- 21,000.00
|
|
Other Operating Expenses
|
-18,500.00
|
-18,500.00
|
|
Total Expenses
|
-125,000.00
|
-101,000.00
|
|
Profit Before Tax
|
-17,500.00
|
4,000.00
|
(a) Explain five negative features from your interpretation of these income statements. There is no requirement to show calculations or workings.
(b) Identify, with justification, one different action for each of the five negative features you have explained in (a) above, which could be taken to minimise each negative feature.
Question 10 - You are a finance manager for HGUplc, a general insurer. HGUplc has pursued a successful organic growth strategy, based on growing their customer numbers at the expense of short-term profitability. HGUplc's Board are comfortable that the organic growth strategy should continue for several more years as it is expected to lead to future profitability. HGUplc's strategy has created a cash out flow, which is predicted to continue for at least the next three years. To date, HGUplc's cash out flow has not impacted their financial rating, asset by the creditr rating agencies.
(a) Identify, with justification, two potential negative implications for HGUplc regarding their organic growth strategy.
(b) Identify, with justification, three opportunities for HGUplc to mitigate the effect of the cash outflow.
(c) Explain, with justification, the extent to which HGUplc's organic growth strategy will in fluence the views of the credit rating agencies. Base your explanation on three elements from the analytical framework used by the credit rating agencies.
(d) Identify three possible effects HGUplc's strategy could have on its shareholders.