Financial Viability Profit Margin and Solvency Margin MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on Financial Viability Profit Margin and Solvency Margin, a fundamental topic in the field of IC 92 Actuarial Aspects of Product Development. Whether you're preparing for competitive exams, honing your problem-solving skills, or simply looking to enhance your abilities in this field, our Financial Viability Profit Margin and Solvency Margin MCQs are designed to help you grasp the core concepts and excel in solving problems.

In this section, you'll find a wide range of Financial Viability Profit Margin and Solvency Margin mcq questions that explore various aspects of Financial Viability Profit Margin and Solvency Margin problems. Each MCQ is crafted to challenge your understanding of Financial Viability Profit Margin and Solvency Margin principles, enabling you to refine your problem-solving techniques. Whether you're a student aiming to ace IC 92 Actuarial Aspects of Product Development tests, a job seeker preparing for interviews, or someone simply interested in sharpening their skills, our Financial Viability Profit Margin and Solvency Margin MCQs are your pathway to success in mastering this essential IC 92 Actuarial Aspects of Product Development topic.

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Financial Viability Profit Margin and Solvency Margin MCQs | Page 2 of 5

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Q11.
What are the two main approaches to calculate the Required Solvency Margin (RSM)?

a.

Factor-based approach and statistical approach

b.

Reserve-based approach and risk-based approach

c.

Factor-based approach and index-based approach

d.

Statistical approach and index-based approach

Discuss
Answer: (a).Factor-based approach and statistical approach Explanation:The two main approaches to calculate RSM are the factor-based approach and the statistical approach.
Q12.
In the factor-based approach, which factor is typically higher: the factor based on reserve or the factor based on sum at risk?

a.

Factor based on reserve

b.

Factor based on sum at risk

c.

Both factors are equal

d.

It depends on the insurer's preference

Discuss
Answer: (a).Factor based on reserve Explanation:In the factor-based approach, the factor based on reserve is usually higher than the factor based on sum at risk.
Q13.
What is the significance of multiplying the first factor by K1 in the RSM calculation?

a.

To adjust for the impact of reinsurance on reserves

b.

To increase the reserve amount

c.

To decrease the reserve amount

d.

To calculate the sum at risk

Discuss
Answer: (a).To adjust for the impact of reinsurance on reserves Explanation:Multiplying the first factor by K1 adjusts for the impact of reinsurance on reserves in the RSM calculation.
Q14.
How is the sum at risk calculated in the RSM calculation?

a.

By adding reserves to the death benefit

b.

By subtracting reserves from the death benefit

c.

By multiplying reserves by a fixed factor

d.

By dividing reserves by the death benefit

Discuss
Answer: (b).By subtracting reserves from the death benefit Explanation:The sum at risk is calculated by subtracting reserves from the death benefit in the RSM calculation.
Q15.
What does RSM stand for?

a.

Reinsurance Solvency Margin

b.

Required Solvency Margin

c.

Reserve Stability Margin

d.

Risk Solvency Margin

Discuss
Answer: (b).Required Solvency Margin Explanation:RSM stands for Required Solvency Margin, which is the additional amount of capital required to be kept by the insurance as a buffer over and above the reserves of the policies.
Q16.
What are the main risks addressed by the computation of RSM?

a.

Market risk and credit risk

b.

Interest risk and mortality risk

c.

Operational risk and liquidity risk

d.

Reputational risk and regulatory risk

Discuss
Answer: (b).Interest risk and mortality risk Explanation:The computation of RSM addresses interest risk, where the insurer may not earn what has been assumed in the pricing, and mortality risk, where the insurer may incur more claims than what has been assumed.
Q17.
What is the limitation of the factor-based approach in calculating RSM?

a.

It produces inconsistent results

b.

It requires extensive data analysis

c.

It may lead to higher capital requirements for companies with higher reserves

d.

It ignores the impact of reinsurance

Discuss
Answer: (c).It may lead to higher capital requirements for companies with higher reserves Explanation:The factor-based approach may lead to higher capital requirements for companies with higher reserves, as it does not consider each company's view on prudence to be built.
Q18.
How does the risk-based capital approach address the limitation of the factor-based approach?

a.

By reducing the required capital for companies with higher reserves

b.

By increasing the required capital for companies with lower reserves

c.

By standardizing the capital requirements across all companies

d.

By incorporating additional risk factors into the calculation

Discuss
Answer: (d).By incorporating additional risk factors into the calculation Explanation:The risk-based capital approach addresses the limitation of the factor-based approach by incorporating additional risk factors into the calculation, providing a more comprehensive measure of risk.
Q19.
What is the minimum required capital if the formula for RSM yields a lower value?

a.

Rs. 20 Cr.

b.

Rs. 30 Cr.

c.

Rs. 40 Cr.

d.

Rs. 50 Cr.

Discuss
Answer: (d).Rs. 50 Cr. Explanation:The minimum required capital is Rs. 50 Cr. if the formula for RSM yields a lower value.
Q20.
Which approach is becoming popular to overcome the limitations of the factor-based approach in risk measurement?

a.

Factor-based approach

b.

Statistical approach

c.

Risk-based capital approach

d.

Index-based approach

Discuss
Answer: (c).Risk-based capital approach Explanation:The risk-based capital approach is becoming popular to overcome the limitations of the factor-based approach in risk measurement.
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