THE CHARTERED INSURANCE INSTITUTE 960 Advanced Diploma in Insurance Unit 960 Advanced underwriting October 2011 examination Instructions Three hours are allowed for this paper. Do not begin writing until the invigilator instructs you to. Read the instructions on page 3 carefully before answering any questions. Provide the information requested on the answer book and form B. You are allowed to write on the inside pages of this question paper, but you must NOT write your name, candidate number, PIN or any other identification anywhere on this question paper. The answer book and this question paper must both be handed in personally by you to the invigilator before you leave the examination room. Failure to comply with this regulation will result in your paper not being marked and you may be prevented from entering this examination in the future. 1913
1913 2 The Chartered Insurance Institute 2011
Unit 960 Advanced underwriting Instructions to candidates Read the instructions below before answering any questions Three hours are allowed for this paper which carries a total of 160 marks, as follows: Part I 1 compulsory question (case study) 80 marks Part II 2 questions selected from 3 (scenarios) 80 marks You should answer the question in Part I, and two out of the three questions in Part II. You are advised to spend no more than 90 minutes on Part I and 45 minutes on each question selected in Part II. It is recommended that you spend 15 minutes reading and planning your answer to the case study and 75 minutes answering it, and that you spend 10 minutes reading and planning your answer to each scenario and 35 minutes answering it. A case study tests extensively across syllabus learning outcomes, whilst a scenario will be more focused on specific learning outcomes. Read carefully all questions and information provided before starting to answer. Your answer will be marked strictly in accordance with the question set. You may find it helpful in some places to make rough notes in the answer booklet. If you do this, you should cross through these notes before you hand in the booklet. Answer each question on a new page. If a question has more than one part, leave six lines blank after each part. 1913 3 PTO
PART I Case study. This question is worth 80 marks. To gain maximum marks you should include relevant examples and further reading in your answer. 1. Case study You are the Underwriting Manager in a well established, medium-sized insurance company specialising in niche personal insurance such as small boat, caravan and trailer insurance. Your account consists of business written in the UK and some areas of Europe. In recent months there has been a significant drop in the number of policies written. You believe the main reason is increased competition, with high rates in a hard market attracting new entrants. Due to these concerns, you have decided to review your current marketing and underwriting strategy and look for ways to differentiate your company from the competition, whilst dealing with the challenges of the underwriting cycle. You also wish to review the company s reinsurance arrangements which presently operate on a proportional treaty basis. Your proposed strategy changes may require this to be amended. Question Write a report for the company s strategic team which: examines the challenges of the underwriting cycle and explains how this may have contributed to the drop in policies written; recommends to senior management possible ways to differentiate the company from its main competitors including the development of an underwriting strategy that will help in this; briefly reconsiders the current reinsurance arrangements in light of this and suggest alternatives for the Underwriting Director to consider. (80) 1913 4
PART II Scenarios. Answer TWO of the following THREE questions. Each question is worth 40 marks. To gain maximum marks you should include relevant examples and further reading in your answer. 2. Scenario As the Portfolio Manager of a large property account, you are concerned by recent figures showing that many of your regional offices have not been meeting their budget for new business sales and are showing deteriorating loss ratios. Question Prepare a report for the regional managers that highlights and explains the importance of monitoring monthly underwriting results for the property account. Give examples of how results could be measured in order to better manage variances from the current plan. (40) 3. Scenario You are a Senior Liability Underwriter at XYZ Insurance. Your liability account has the following main features in comparison with your major competitors. XYZ Insurance Main competitors 1. Premium income of 5.2 million. 1. Significantly higher premium incomes averaging 25 million. 2. Reinsurance costs kept minimal. 2. Complex reinsurance arrangements with high costs. 3. The liability account provides main 3. Wider spread of risks, with a higher income for the company with internal proportion of income from other exposure data showing liability accounts such as motor and property. accounts are more susceptible to accumulation. 4. Claims costs and loss ratios have 4. High claims costs and loss ratios. been maintained at a consistently low level. You have recently received feedback from some shareholders expressing concerns that your company is overly cautious in its approach to managing exposure to risk. Question Prepare a report for the shareholders which explains the reasons why your company s attitude to exposure and accumulations of risks differs from your competitors and may therefore be seen as cautious. (40) Questions continue over the page 1913 5 PTO
4. Scenario As a newly appointed manager for a motor insurance team, you have identified some problems in the way the account has previously been managed. Your two main issues are: there is currently an insufficient process in place for categorising and classifying risks for the motor account; secondly, you have noticed that there is no split of data per underwriter in data collection which is hindering you from effectively monitoring individual performance. Question Prepare a report for your directors that: explains in depth the importance of risk categorisation and classification and recommends an adequate process for categorising and classifying risks for your account; briefly discusses the importance of monitoring performance and results by underwriter and how this would help your management of the account. (40) 1913 6
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