THE CHARTERED INSURANCE INSTITUTE
990
Advanced Diploma in Insurance
Unit 990 – Insurance corporate management
April 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
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Unit 990 – Insurance corporate management
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.
• It is important to show each step in any calculation, even if you have used a calculator.
• If you bring a calculator into the examination room, it must be a silent battery or solar-powered non-programmable calculator. The use of electronic equipment capable of being programmed to hold alphabetic or numerical data and/or formulae is prohibited. You may use a financial or scientific calculator, provided it meets these requirements.
• Answer each question on a new page. If a question has more than one part, leave six lines blank after each part.
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 an external consultant who has been retained by SER Insurance Company to prepare a report on the organisational structure. You have been provided with the following information.
SER Insurance Company was formed in 2002 by a group of investors who retain 90% of the equity, with the balance held by directors and senior managers. From its inception, when it only had 20 employees, the business has grown from a first year gross written premium of £8million to the current year’s £300million, primarily through a series of acquisitions of UK based insurers. Staff currently number 300. The business insures personal and commercial lines of business, written on a direct basis in the UK and through agents in Europe.
The business retains a functional organisational structure, although this has created tensions in recent years between departments regarding strategic implementation. This has also led to an increasing lack of focus on rapidly absorbing acquisitions. In addition, the focus of directors and senior managers is being deflected from the long-term direction of the business due to their large spans of control.
The strategy is to create a highly efficient and profitable organisation which will, through acquisitions, absorb relatively poorly performing small and medium sized insurers into a business which has the lowest operating ratio of any insurer in the marketplace. These low operating costs will be achieved by being prepared to outsource any activity which can be externally handled more cost effectively and with better performance. The strategy includes recognition of the importance of customer focus and the need for information systems to be built around an understanding of the customer.
SER Insurance Company remains on target to complete four further acquisitions in the next six years which, with organic growth, will enable it to achieve an annual gross written premium of £1billion by 2016. To date, 10% of the expenses are represented by outsourced activity and the Board are committed to increasing this to over 60% by 2020. The current organisational structure is:
Chief Executive Marketing & Sales Directors (UK) Marketing & Sales Director (Europe ex UK) Finance
Director Acquisitions Head of
Department Company Secretary Claims Manager Underwriting Director IT Head of Department
Question
Prepare a report for SER Insurance Company in which you examine the current organisational structure. Then consider alternative organisational structures which may be more effective. You should recommend a suitable structure to support the further development of this business and justify your recommendation. (80)
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
You are the Executive Manager for an Insurer who has established a major position in the personal lines direct sales market, where the opportunity to grow is limited. The Board has identified that the commercial market for small and medium sized businesses presents an opportunity for direct selling.
Question
You are asked by the Board to explore this opportunity by examining the factors which should be taken into account when considering whether to make a multi-million pound investment in a project to develop a commercial market direct sales capability. (40)
3. Scenario
An insurer faces conflicting demands when it considers the capital requirement for its long-term success. The shareholders want to see the return on their investment optimised whilst insurance regulation requires that there is confidence regarding claims payments. It is also difficult for insurers to plan their financial risk management structure as it is not possible accurately to predict the future.
Question
Examine how the insurer through an understanding of capital adequacy and capital management can seek to balance and manage these needs. (40)
4. Scenario
RES Insurance Company has suffered a major underwriting loss from a series of large claims in one of its product portfolios which has a multi-million pound annual written premium. The scale of the loss is such that RES’s combined operating ratio, which was recently predicted to shareholders as 98%, for the year to 31 March 2011 will likely be in excess of 115%. This substantial deterioration has only just come to the attention of RES’s Board. You are the senior non-executive director who chairs the Board’s Audit Committee.
Question
Examine the nature of the enquiries you would make to investigate the combined operating ratio deterioration and describe your initial recommendation about regulatory implications. (40)
