Question 1: FCA Objectives

The Financial Conduct Authority (FCA) has a single strategic objective and three operational objectives.
Which of the following is NOT one of the three operational objectives?

A) To promote effective competition in the interests of consumers.

B) To secure an appropriate degree of protection for consumers.

C) To promote the safety and soundness of the firms it regulates.

D) To protect and enhance the integrity of the UK financial system.

Question 2: PRA Principles for Businesses (PRIN)

The FCA's Principles for Businesses (PRIN) contains 12 principles. Which of the following Principles is
applied by the FCA but is NOT applied by the Prudential Regulation Authority (PRA)?

A) Principle 4: Financial prudence.

B) Principle 8: Conflicts of interest.

C) Principle 11: Relations with regulators.

D) Principle 6: Customers' interests.

Question 3: Consumer Duty Exclusions

The FCA's Consumer Duty (Principle 12) requires firms to act to deliver good outcomes for retail customers.
In which of the following scenarios would an underwriting decision most likely NOT be subject to the
Consumer Duty?

A) A bespoke pure protection policy sold to a High Net Worth individual.

B) The renewal of a motor insurance policy for a self-employed courier.

C) A contract of reinsurance accepted from an overseas cedant.

D) A group private medical insurance scheme extended to a new employee.

Question 4: PRA Category 1 Definition

The Prudential Regulation Authority (PRA) divides firms into four categories based on their 'potential
impact' if they fail. What is the defining characteristic of a Category 1 firm?

A) Firms that have the capacity to cause some disruption to the UK financial system.

B) Firms whose failure could cause minor disruption, but whose sector difficulties could generate broader
disruption.

C) Firms whose size, interconnectedness, complexity, and business type give them the capacity to cause very
significant disruption to the UK financial system by failing.

D) Firms that have almost no capacity to cause disruption individually but whose sector difficulties have the
potential to generate disruption.

Question 5: FSCS Compensation Limits

A consumer holds a combined general insurance policy for their home and contents, which includes a
compulsory component of Employers' Liability (EL) cover for a domestic cleaner. If the insurer fails, what
are the respective compensation limits for the General Insurance (GI) portion and the Employers' Liability
(EL) portion under the Financial Services Compensation Scheme (FSCS)?

A) GI: 90% of the claim (no upper limit); EL: 90% of the claim (no upper limit).

B) GI: 90% of the claim (no upper limit); EL: 100% of the claim (no upper limit).

C) GI: 100% of the claim (no upper limit); EL: 90% of the claim (no upper limit).

D) GI: £85,000 limit; EL: 100% of the claim (no upper limit).

Question 6: Distinction in Dual Regulation

Which statement accurately reflects the differing regulatory focus for dual-regulated insurance companies?

A) The PRA seeks to ensure policyholders are treated fairly; the FCA seeks to ensure continuity of policy
provision.

B) The PRA is concerned with the safety and soundness of the UK financial system; the FCA is concerned
with ensuring policyholders are treated fairly.

C) The PRA ensures continuity of policy provision; the FCA ensures the firm maintains adequate financial
resources.

D) The PRA is responsible for the conduct of business; the FCA is responsible for prudential regulation.

Question 7: FOS Jurisdiction and Underwriting

Under what specific condition can the Financial Ombudsman Service (FOS) consider a complaint related to
an insurer's underwriting decision?

A) Where the insurer has breached the terms of a statute such as the Equality Act 2010.

B) Where the complainant is a charity with an annual income of exactly £7 million.

C) Where the underwriting decision is deemed to be against the firm’s proper use of commercial judgment.

D) Where the underwriting decision is found to have breached the firm’s own internal complaints procedure.

Question 8: FCA's Supervision Model

An insurance broker is found to be consistently selling inappropriate add-on products to its customers. The
FCA initiates a fast, intensive campaign to review this practice across the entire intermediary sector. This
action aligns with which pillar of the FCA's supervision model?

A) Firm Systematic Framework (FSF).

B) Event-driven work.

C) Thematic Review.

D) Issues and products.

Question 9: FOS Time-Barred Rules

A complainant is referred to the Financial Ombudsman Service (FOS) concerning an issue that occurred five
years ago. Which combination of scenarios would allow the FOS to consider the complaint?

A) The firm's final response letter was issued seven months ago, and the complainant only knew of the cause
for complaint four years ago.

B) The firm's final response letter was issued five months ago, and the complainant only knew of the cause
for complaint four years ago.

C) The firm’s final response letter was issued seven months ago, but the case involves a pension transfer.

D) The event occurred over six years ago, but the firm has given its agreement to the FOS to review the case.

Question 10: Underwriter's Responsibility and PRIN

An underwriter is creating a complex insurance scheme for a new product, which involves a referral process
where the underwriter provides suitability advice based on the client's information. Which Principle for
Businesses (PRIN) is this underwriter most closely impacting by ensuring the advice provided is appropriate
for the client?
A) Principle 6: Customers' interests.

B) Principle 7: Communications with clients.

C) Principle 12: Consumer Duty.

D) Principle 9: Customers: relationships of trust.

Answer
Question 1

C) To promote the safety and soundness of the firms it regulates. This is the general objective of the
Prudential Regulation Authority (PRA). The FCA's strategic objective is "to ensure that the relevant
markets function well". Its three operational objectives are A, B, and D.
Question 2

D) Principle 6: Customers' interests. The PRA only applies Principles 1 to 4, 8, and 11. Principle 6, which
requires a firm to pay due regard to the interests of its customers and treat them fairly, is a conduct
regulation principle falling solely under the FCA's remit for dual-regulated firms.

Question 3

C) A contract of reinsurance accepted from an overseas cedant. The Consumer Duty does not apply to
reinsurance. It also does not apply to contracts of large risk sold to commercial customers, or activities
connected to the distribution or extension of group insurance policies to new members. Although D is
related to an exclusion, the most definitive and distinct exclusion from the options is C.

Question 4

C) Firms whose size, interconnectedness, complexity, and business type give them the capacity to cause
very significant disruption to the UK financial system by failing. This is the explicit definition of a
Category 1 firm, representing the highest risk to the PRA's objectives.

Question 5

B) GI: 90% of the claim (no upper limit); EL: 100% of the claim (no upper limit). General insurance
(excluding compulsory and protection-based policies) is covered at 90% with no upper limit. Compulsory
insurance, such as Employers' Liability, is covered at 100% with no upper limit.

Question 6

B) The PRA is concerned with the safety and soundness of the UK financial system; the FCA is
concerned with ensuring policyholders are treated fairly. The PRA seeks to ensure continuity of policy
provision (a component of safety and soundness) , while the FCA seeks to ensure policyholders are treated
fairly (conduct regulation). Option C inverts the roles. Option B is incorrect as the FCA focuses on conduct,
while Principle 4 (Financial prudence) is a shared principle applied by both, but prudential regulation is
primarily the PRA's role. Option D inverts the roles.

Question 7

A) Where the insurer has breached the terms of a statute such as the Equality Act 2010. The FOS is
generally unable to rule on underwriting decisions as they relate to 'a business's proper use of its commercial
judgment'. An exception is made where the insurer has breached a statute like the Rehabilitation of Offenders
Act 1974 or the Equality Act 2010. Option A is ineligible as the income limit for charities is less than £6.5m.

Question 8

D) Issues and products. This pillar focuses on "Fast, intensive campaigns on sectors of the market or
products within a sector that are putting or may put consumers at risk". The FSF is preventative work
focusing on a firm's governance and culture , while event-driven work deals with emerging or occurred
problems. A thematic review is the method used to carry out the work, but 'Issues and products' is the
designated pillar name.
Question 9

B) The firm's final response letter was issued five months ago, and the complainant only knew of the
cause for complaint four years ago. The complaint must be referred to the FOS within the earliest of:

1. Six months of the firm’s final decision letter. (Five months is within the limit.)
2. Six years after the event. (Five years is within the limit.)

Three years after the complainant knew, or should have known, that they had cause for complaint. (Four
years exceeds the limit, but the FOS uses the earliest of the time limits as a trigger for being time-barred.
The text suggests that the complaint will be time-barred if any of the limits are passed, but the actual FOS
rule is that the firm can object if the complaint is time-barred by any of the rules, and the FOS will check.
However, comparing the options, B is the only one where both the 6-month and 6-year deadlines are
respected. Option C and D deal with exceptions but D is the more definitive exception: the firm can agree to
waive the time bar even if the six-year limit has expired. Correction: Re-evaluating B vs D for "hardest"
and most technically correct. Option D: The six-year limit has expired (event over six years ago), but the
firm agrees to review. This is explicitly stated as an allowance. Option B: 5 months (OK), 5 years (OK), 4
years (over 3 years limit). The firm can object to a time-barred complaint. Therefore, D is the scenario most
likely to proceed, as it involves the firm overriding the bar. For the purpose of a hard exam question, B is the
best distractor as it tests multiple time limits, and is the technically time-barred option among the non-
exception cases. However, since the question asks for a scenario that allows the FOS to consider the
complaint, and Option D involves a permissible exception, D is the most robust correct answer by way of
exception. Let's choose the exception-based answer for a challenging question.

Question 10

D) Principle 9: Customers: relationships of trust. This principle specifically requires a firm to "take
reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is
entitled to rely upon its judgment". While all options are relevant conduct principles, Principle 9 is the
precise principle relating to suitability of advice.
Chapter 2
Capital and Solvency Requirements

Question 1 (Calculation of Required Profit Return on Premium)

An insurer's investors require a minimum return of 10% on their allocated capital (assets). Given the
following portfolio data, what is the required % return (profit) on premium for the Employers' Liability
account and the Household account, respectively?

Employers' Liability Household

Assets Used £200m £50m

Premium Income £50m £100m

A) EL: 20%, Household: 10%

B) EL: 10%, Household: 10%

C) EL: 40%, Household: 5%

D) EL: 5%, Household: 40%

Question 2 (Capital Requirements Distinction)

Which regulatory requirement represents the greater of the Minimum Capital Requirement (MCR) and the
risk-based calculation known as the Enhanced Capital Requirement (ECR)?

A) Individual Capital Assessment (ICA)

B) Individual Capital Guidance (ICG)

C) General Insurance Capital Requirement (GICR)

D) Capital Resources Requirement (CRR)

Question 3 (Solvency UK Application Thresholds)

Following the transition to Solvency UK, what is the new minimum gross written premium threshold for
firms to which Solvency UK applies?

A) €5 million or more

B) £15 million or more

C) £25 million or more

D) €25 million or more

Question 4 (Solvency II Objectives)

Which of the following was NOT a key objective of the original EU Solvency II Directive?

A) To deepen EU market integration by harmonising supervisory regimes.

B) To modernise regulatory supervision by evaluating insurers' risk profiles.

C) To improve consumer protection by ensuring a uniform and enhanced level of policyholder protection.

D) To simplify the calculation of the Transitional Measure on Technical Provisions (TMTP). (This was a
change under Solvency UK, not an original Solvency II objective.)

Question 5 (Underwriting and Volatility)

Liability accounts require a greater allocation of capital compared to property accounts primarily because of
volatility. How does the chapter define volatility in this context?

A) The possibility that the investment returns on reserves will not match expectations.

B) The total value of all claims in a portfolio exceeding the total premium income.

C) The fact that a small but significant minority of liability claims can be particularly expensive and less
certain to settle in value and time.

D) The requirement for an additional 50% capital buffer on liability claims over other classes.

Question 6 (Capital Management Risks)

An insurer is considered to have too much capital if they have no clear plan to use it for development or
growth. In such a scenario, what is a potential action the insurer might take?

A) Buy more reinsurance to maintain capacity.

B) Attract the attention of the PRA, which compromises its ability to raise more capital.

C) Limit the underwriter's authority to accept business.

D) Return capital to investors or owners.

Contract Certainty

Question 7 (Contract Certainty Timelines - Consumer)

According to Principle B of the Contract Certainty Code of Practice, within how many working days must
contract documentation be provided to a consumer policyholder after entering into the contract?

A) 14 calendar days

B) 30 calendar days

C) 7 working days

D) 30 working days

Question 8 (Contract Certainty Timelines - Non-Consumer)

For a commercial client classification, documentation must be provided within which timeframe from the
later of the inception date or the date the last insurer enters the contract?

A) 7 working days

B) 30 working days

C) 60 calendar days

D) 30 calendar days

Question 9 (Contract Certainty Principles)

What is the fundamental requirement for achieving contract certainty, as defined by the Code of Practice?

A) Documents must be provided promptly, within 30 days of the contract inception date.

B) The contract must be issued in plain and intelligible language.

C) The complete and final agreement of all terms between the insured and insurer must be reached by the
time they enter into the contract.

D) All terms must be clearly expressed, including any conditions or subjectivities, before the policy is issued.

Legislative Factors (Consumer & Third Parties)

Question 10 (Consumer Rights Act 2015 - Prominence)

The Consumer Rights Act 2015 allows a non-transparent or non-prominent contract term to be assessed for
unfairness. A term is deemed prominent if it is brought to the consumer's attention in such a way that:
A) It is expressed in plain and intelligible language (transparent).

B) An average consumer would be aware of it.

C) It is presented in bold text, at least 12-point font.

D) It can be challenged on the grounds of fairness.

Question 11 (Consumer Rights Act 2015 - Core Terms)

Which statement is true regarding the Consumer Rights Act 2015 and the core terms of an insurance contract,
such as exclusions?

A) They can be challenged on the grounds of fairness if they are not brought to the consumer's attention.

B) They must be assessed for unfairness regardless of transparency or prominence.

C) They cannot be challenged on the grounds of fairness.

D) They are defined as only the premium and the sum insured.

Question 12 (Contracts (Rights of Third Parties) Act 1999)

The standard practice of insurers to include a general exclusion in their policies concerning the Contracts
(Rights of Third Parties) Act 1999 is primarily due to which factor?

A) It is mandatory under the Financial Services and Markets Act 2000.

B) The Act permits the parties to contract out of its terms, and insurers are unwilling to extend liability to
non-parties.

C) It prevents the third party from ever being identified in the contract by class or description.

D) It is necessary to comply with the principle of utmost good faith ( uberrimae fidei).

Data Protection (UK GDPR / DPA 2018)

Question 13 (Sensitive Personal Data)

Which of the following types of information is NOT classified as a 'special category' of sensitive personal
data under the legislation?

A) Health information

B) Genetic data

C) Information about sex life

D) An individual's IP address

Question 14 (Data Protection Principles - Distinction)

Which of the seven Data Protection Principles requires organisations to process no more information than
they need, stating that they must use the minimum amount of data required to fulfill their purposes?

A) Accountability

B) Purpose limitation

C) Data minimisation

D) Storage limitation

Question 15 (Lawful Processing Bases - Underwriter Reliance)

When an underwriter processes a client's personal data to carry out a risk assessment for pricing and policy terms,
which lawful basis is an insurer most likely to rely upon, provided a balancing test is passed?

A) Consent

B) Contract

C) Legitimate interests

D) Vital interests

Question 16 (Data Subject Rights - SAR Timescale)

An individual submits a Subject Access Request (SAR) to an insurer. What is the standard timeframe within which the
company should respond?

A) Seven working days

B) One month

C) Three months (if complex)

D) Six years

Question 17 (Lawfulness, Fairness and Transparency Principle)

To comply with the requirement for transparency under the first Data Protection Principle, what must organisations do?

A) Keep records to demonstrate compliance with the other six principles (Accountability).

B) Process personal data in ways that people would reasonably expect (Fairness).

C) Be clear, open, and honest with individuals about the personal data they are processing, and why and how they are
doing it.
D) Not process data for reasons other than those for which it was obtained (Purpose Limitation).

Question 18 (Data Breach Fines)

For the most serious data breaches, what is the maximum potential fine the Information Commissioner's
Office (ICO) may levy?

A) £500,000 or 1% of annual global turnover, if higher.

B) £10 million or 2% of annual global turnover, if higher.

C) £17.5 million or 4% of annual global turnover, if higher.

D) £20 million or 5% of annual global turnover, if higher.

Question 19 (Data Processing - Manual Systems)

The data protection legislation governs the processing of electronic data. What is a key, but perhaps less-
known, fact about its application?

A) It does not apply to personal data that has been effectively anonymised.

B) It does not apply to processing for domestic purposes.

C) It also governs the processing of personal data in a manual filing system.

D) It is mainly concerned with the processing of personal data by law enforcement authorities.

Question 20 (Compulsory Insurance Legislation)

Which of the following pieces of UK legislation makes it compulsory for a business with employees to have
Employers’ Liability insurance?

A) Road Traffic Act 1988

B) Financial Services and Markets Act 2000

C) Employers’ Liability (Compulsory Insurance) Act 1969

D) Dangerous Wild Animals Act 1976

 Chapter 2 Answers
Questio
Correct Answer Rationale Summary
n No.
EL Required Profit: £200m * 10% = £20m. Return on
Premium: £20m / £50m = 40%.
1 C) EL: 40%, Household: 5%
Household Required Profit: £50m * 10% = £5m. Return on
Premium: £5m / £100m = 5%.
The CRR (under the previous UK regime) was the greater of the
D) Capital Resources
2 Minimum Capital Requirement (MCR) and the risk-based
Requirement (CRR)
Enhanced Capital Requirement (ECR).
Solvency UK applies to insurers with gross written premium of
3 C) £25 million or more £25 million or more, increasing the threshold from the previous
€5 million.
D) To simplify the calculation Simplifying the TMTP calculation is a feature of the Solvency
4 of the Transitional Measure on UK reforms, not an original objective of the Solvency II
Technical Provisions (TMTP). Directive.
C) The fact that a small but
significant minority of liability Volatility in liability underwriting refers to the unpredictable and
5 claims can be particularly potentially high cost of long-tail claims, which necessitates a
expensive and less certain to higher capital allocation.
settle in value and time.
If an insurer holds excess capital with no strategic use for it (e.g.,
D) Return capital to investors
6 expansion), the best use is often to return it to shareholders
or owners.
(e.g., via dividends or buybacks).
For consumer policies, the contract must be provided within 7
7 C) 7 working days
working days of the agreement.
For non-consumer (commercial) policies, documentation must
8 D) 30 calendar days be provided within 30 calendar days of inception or the final
agreement date.
C) The complete and final
agreement of all terms
The core of Contract Certainty is that all terms are agreed upon
between the insured and
9 at the point the contract is bound, preventing post-inception
insurer must be reached by
negotiation.
the time they enter into the
contract.
A core term is deemed prominent if it is presented in a way that
B) An average consumer
10 an average consumer, who is reasonably well-informed,
would be aware of it.
observant, and circumspect, would be aware of it.
11 A) They can be challenged on The core terms (defining the main subject matter or price)
 the grounds of fairness if they cannot be challenged for fairness if they are transparent and
are not brought to the prominent. If they lack prominence, they can be assessed for
consumer's attention. unfairness.
B) The Act permits the parties
Insurers use an express exclusion clause because the 1999 Act
to contract out of its terms,
12 allows parties to opt out and limits potential liability to third
and insurers are unwilling to
parties not originally intended.
extend liability to non-parties.
An IP address is personal data but is not classified as a 'special
category' (sensitive) data, unlike the other three options, which
13 D) An individual's IP address
cover physical/mental health and biometric/sexual
characteristics.
Data minimisation requires that the data processed must be
14 C) Data minimisation adequate, relevant, and limited to what is necessary in relation to
the purposes for which they are processed.
For processing non-sensitive data (like name, address, claims
history) for pricing/risk assessment, insurers often rely on
15 C) Legitimate interests
Legitimate Interests, which requires a balancing test against
the data subject's rights.
The standard timeframe for responding to a Subject Access
16 B) One month Request (SAR) is one month from receipt, extendable by up to
two further months for complex requests.
C) Be clear, open, and honest
with individuals about the
Transparency requires clear communication with individuals
17 personal data they are
about the what, why, and how of the processing.
processing, and why and how
they are doing it.
C) £17.5 million or 4% of
This is the maximum penalty for the most severe data breaches
18 annual global turnover, if
under UK GDPR / Data Protection Act 2018.
higher.
C) It also governs the The legislation covers both automated (electronic) processing
19 processing of personal data in and processing in a manual filing system structured by
a manual filing system. reference to individuals.
C) Employers’ Liability This specific Act mandates that nearly all UK employers must
20 (Compulsory Insurance) Act have insurance to cover the cost of compensation for employees'
1969 injuries or illnesses sustained due to their work.

The Underwriting Cycle

Question 1

In the context of the underwriting cycle, which statement accurately describes the
simultaneous effect of a soft market on an insurer's operating costs and reinsurance
premiums?

A) The expense ratio falls because variable costs reduce, and reinsurance costs decrease in line
with lower written premium.

B) The expense ratio rises because fixed costs are applied to a diminishing premium income, while
reinsurance costs remain high due to minimum premium requirements.
C) The expense ratio remains stable due to consistent claim frequency, and reinsurance costs
increase due to higher exposure.

D) The expense ratio is mitigated by higher investment income, which offsets the increase in fixed
costs, stabilizing profitability.

Question 2

According to the principles of cycle management, what is the primary purpose for prudent
insurers to build up reserves from profit during the hard market phase?

A) To increase capacity immediately and intensify competition with newer market entrants.

B) To lower the overall expense ratio by increasing the total amount of written premium.

C) To fund anticipated losses at the bottom of the cycle, thereby ensuring the firm's survival and
solvency.

D) To return capital to investors through buy-backs before the market inevitably declines.

Question 3

Which statement accurately differentiates the primary driver of the underwriting cycle
across major insurance classes, according to past performance?

A) Both property and personal lines motor business are fundamentally price-driven due to
enhanced quotation systems.

B) Property and commercial lines are fundamentally driven by claims cost, but personal lines motor
tends to be more price-driven due to lower claims volatility.

C) Commercial lines are claims-driven, while personal lines motor and property are both driven by
investment returns.

D) All insurance lines are primarily driven by claims cost, but the effect is delayed in property
business due to long-tail liability.

Question 4

In the operation of the underwriting cycle, what is the precise sequential event that occurs
immediately after higher profits are achieved in a class of business?

A) Lower prices due to increased competition.

B) Capacity withdrawal.

C) Increased investment and higher capacity for that class.

D) Higher prices due to reduced competition.

Economic Trends and Legislation

Question 5

Economic statistics suggest a relationship between the UK economy and claims

experience. The recession in the early 1990s coincided with a doubling of theft claims,
which led directly to the establishment of which major anti-fraud initiative?

A) The Insurance Fraud Bureau (IFB).

B) Claims Underwriting Exchange (CUE).

C) The Employers' Liability Tracing Office (ELTO).

D) The Financial Services Compensation Scheme (FSCS).

Question 6

Under the Employers' Liability Tracing Office (ELTO) mandatory information requirements,
which of the following details must be supplied to the database within 90 days of inception?

A) Policy premium1.

B) The exact names and dates of birth of all employees2.

C) The Employer Reference Number (ERN) including for any subsidiary companies covered3.

D) Full historical claims data (pre-April 2011)4.

Question 7

How does the UK's Climate Change Act 2008 primarily address the causes of climate
change?

A) By setting a target that commits the UK to reduce global emissions by 20505.

B) By establishing the ClimateWise Principles framework for insurers6.

C) By enhancing the UK's ability to adapt to the impact of climate change7.

D) By outlining a new approach to managing and responding to climate change in the UK through
setting targets and improving carbon management8.

Catastrophe and Emerging Risks

Question 8
Which of the following is an accurate distinction between the coverage provided by Pool Re
and Flood Re?

A) Pool Re covers commercial property for terrorism; Flood Re covers homes built after 2009 for
flood risk99.

B) Pool Re covers commercial property for terrorism; Flood Re covers homes built before 2009 for
flood risk10101010.

C) Pool Re covers private motor for terrorism; Flood Re covers commercial property for flood
risk11.

D) Pool Re is a private industry fund; Flood Re is a government-funded scheme12.

Question 9

The UK government assessed the economic cost of flooding between November 2019 and
March 2020 at approximately £333m. What critical factor is already included in this figure?

A) Savings due to the non-payment of flood claims by Flood Re.

B) The projected future cost of repairs adjusted for inflation.

C) Savings due to existing flood defences.

D) Claims paid under the business interruption part of the cover.

Question 10

Following the eruption of Eyjafjallajökull in 2010, which caused an unprecedented disruption to air
travel, what was the primary insurance loss incurred by travel insurers?

A) Physical damage claims to commercial aircraft caused by volcanic ash.

B) Liability claims from airlines seeking compensation for lost revenue.

C) Claims by individual consumer policyholders for delay and subsequent travel abandonment.

D) Claims for medical care incurred by stranded passengers.

Question 11

In response to global conflicts that affect the price and availability of oil, which resulting
scenario is known to reduce motor claims frequency and total cost?

A) A significant reduction in the price of oil, leading to more vehicle usage13.

B) Petrol shortages which are inflationary and increase operating costs, but reduce the number of
vehicles being used14.
C) Increased vehicle usage due to cheaper petrol, resulting in lower average premiums15.

D) An overall reduction in indemnity levels imposed by reinsurers due to higher risk16.

Question 12

Which of the following is the defining characteristic of a home being at significant risk of
flooding in the UK, as described in the context of the Flood Re scheme?

A) The home is located within a designated flood plain17.

B) The likelihood of flooding is once in 100 years18.

C) The likelihood of flooding is once in 75 years19.

D) The property has made a flood claim in the last five years20.

Question 13

The Swiss Re Institute's Biodiversity and Ecosystem Services (BES) Index serves which
primary function for insurers?

A) To mandate the incorporation of climate change into investment strategies (ClimateWise

Principle 4)21.

B) To assist governments in informing public policy making (ClimateWise Principle 2)22.

C) To provide a data-driven foundation for understanding the economic risks of deteriorating

biodiversity and ecosystems23.

D) To quantify the total loss of a specific natural catastrophe event (catastrophe modelling)24.

Question 14

Which of the following is NOT one of the six commitments outlined in the insurance
industry's ClimateWise Principles?

A) Inform public policy making25.

B) Lead in risk analysis26.

C) Mandate the inclusion of climate change exclusions in all new policies.

D) Incorporate climate change into investment strategies27.

Question 15

The High Court decision in the FCA Test Case in September 2020 and the subsequent
Supreme Court judgment in January 2021 primarily focused on providing clarity regarding
which type of insurance policy?
A) Travel insurance due to pandemic cancellation28.

B) Property insurance subsidence claims29.

C) Business Interruption insurance in the context of the COVID-19 pandemic30.

D) Employers’ Liability policies for long-term industrial disease31.

Global & Underwriting Strategy

Question 16

In which of the following major insurance markets is cover for natural catastrophe
(including flood) mandatory for all policyholders, who pay a premium surcharge set by the
Government?

A) UK32.

B) Germany33.

C) USA34.

D) France35.

Question 17

In the USA, how is insurance coverage typically provided for the perils of wind damage and
flood damage, respectively, under property insurance policies?

A) Both are covered by the Federal Government36.

B) Wind is covered by the private market; Flood is usually covered by the private market37.

C) Both are provided through the private market38.

D) Wind is covered by the private market; Flood is covered by the Federal Government39.

Question 18

During a soft market phase, an insurer comes under increased pressure from
intermediaries. What is the primary reason for this pressure?

A) The pressure to maintain market share forces intermediaries to seek higher commissions to
offset their reduced income from lower premiums40.

B) The reduced capacity means intermediaries must search harder for a carrier, increasing their
operating costs41.
C) Customers demand greater discounts, forcing intermediaries to seek cheaper reinsurance.

D) Intermediaries demand a simplification of underwriting rules, conflicting with the insurer's need
for selective underwriting42.

Question 19

Catastrophes of the magnitude of Hurricane Katrina lead to two immediate consequences

for the international insurance community. What are these two consequences?

A) Lower reinsurance prices and increased demand for group life cover43.

B) A reduction in insurer fixed costs and the withdrawal of government guarantee schemes44.

C) Higher premiums for cover against natural disasters, and pressure on insurers' and reinsurers'
capital45.

D) Greater investment income opportunities and a mandatory switch to the CATNAT scheme46.

Question 20

What change in claims handling practice was introduced for UK subsidence claims
following the series of long hot summers after 1976?

A) The introduction of mandatory physical damage limits under XOL reinsurance47474747.

B) The complete withdrawal of subsidence cover from the market48.

C) The initial tendency to prescribe immediate underpinning or structural repair shifted to remedial
action followed by monitoring and repair as needed49.

D) The requirement for a policyholder to bear a portion of the risk through deductibles (excesses)
was removed50.

Answers and Explanations

Q Answer Explanation

In a soft market, premium income shrinks. Fixed costs (e.g., premises) remain the
same, causing the expense ratio to rise51. Reinsurers have minimum premium
1 B
requirements, so reinsurance costs will not fall in line with the premium reduction,
maintaining pressure52525252.

At the top of the cycle (hard market), prudent insurers build up reserves from profit
2 C
to fund anticipated losses at the bottom of the cycle, thereby ensuring survival 53.
 The cycle is fundamentally driven by claims cost for property and commercial
3 B lines54545454. However, personal lines, particularly private motor, tend to be more
price-driven as customers shop around due to lower claims volatility55.

The cycle follows: higher profits $\rightarrow$ (increased investment) higher

4 C capacity for that class $\rightarrow$ (increased competition) lower
prices565656565656565656.

The recession in the early 1990s coincided with an approximate doubling of theft
5 B claims, which led to the first of the major UK anti-fraud database initiatives, the
Claims Underwriting Exchange (CUE)57.

Mandatory information for the ELTO database includes the Employer Reference
6 C Number (ERN) including for any subsidiary companies covered 58. This
information must be provided within 90 days of inception59.

Two key aims underpin the Act: 1. Improve carbon management, thereby helping
7 D the transition towards a low carbon economy in the UK 60. 2. Demonstrate strong
UK leadership internationally61.

Pool Re provides reinsurance for commercial property against terrorism62. Flood

8 B Re is a reinsurance scheme that covers homes, but excludes properties built after
200963.
The figure of approximately £333m factors in savings due to existing flood
9 C defences64, meaning the actual economic cost would have been higher without
them.

Although volcanic eruption is usually not a specific insured risk, the disruption led to
10 C claims by individual consumer policyholders for delay and subsequent travel
abandonment being met by travel insurers65.

Petrol shortages (e.g., due to Middle East conflicts) are inflationary but have been
11 B shown to reduce the number of vehicles being used, which in turn reduces claims
frequency and total cost66.

The document defines homes at significant risk of flooding (up to 5% of homes)

12 C
as those where the likelihood of flooding is once in 75 years67.

The Swiss Re Institute's Biodiversity and Ecosystem Services (BES) Index

13 C provides a data-driven foundation for understanding the economic risks of
deteriorating biodiversity and ecosystems68.
 The six ClimateWise Principles include leading in risk analysis, informing public
policy, supporting customer awareness, incorporating climate change into investment
14 C
strategies, reducing environmental impact, and reporting/accountability69. Mandating
exclusions is not one of the principles.

The FCA Test Case was initiated to provide clarity on policy terms and conditions for
15 C
Business Interruption insurance in the wake of the COVID-19 pandemic70.

In France, natural catastrophe coverage is mandatory. All policyholders pay a

16 D premium surcharge set by the Government (12% of the fire premium for most
lines)71.

In the USA, wind damage is covered through the private market, but flood is
17 D
usually excluded and covered by the Federal Government72.

Intermediaries ask for increased commission during a soft market because lower
18 A
insurance premiums have the knock-on effect of reducing their own income73.

Catastrophes of this magnitude lead to higher premiums for cover against natural
19 C disasters and pressure on insurers' and reinsurers' capital as they struggle to
meet the large losses74.

The approach shifted from prescribing immediate underpinning to taking remedial

20 C
action (e.g., removing trees) followed by monitoring and repair as needed75.