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 3 of 5

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Q21.
What is the main limitation of the factors-based approach in calculating Required Solvency Margin (RSM)?

a.

It does not consider operational risks such as frauds and defaults.

b.

It requires complex calculations.

c.

It is not approved by insurance regulators.

d.

It is not suitable for large insurance companies.

Discuss
Answer: (a).It does not consider operational risks such as frauds and defaults. Explanation:The factors-based approach in calculating RSM does not take into account operational risks such as frauds in the business, defaults on investments, and escalation of expenses.
Q22.
What is the main advantage of the Risk Based Capital (RBC) approach over the factors-based approach?

a.

It is simpler and easier to calculate.

b.

It considers operational risks and measures each risk separately.

c.

It requires higher capital reserves.

d.

It is only suitable for small insurance companies.

Discuss
Answer: (b).It considers operational risks and measures each risk separately. Explanation:The Risk Based Capital (RBC) approach measures each risk separately and considers operational risks, making it more comprehensive than the factors-based approach.
Q23.
How does the Risk Based Capital (RBC) approach benefit companies with good risk management systems?

a.

They are required to keep higher capital reserves.

b.

They are not affected by changes in regulatory requirements.

c.

They are required to keep lower capital reserves.

d.

They are exempt from regulatory oversight.

Discuss
Answer: (c).They are required to keep lower capital reserves. Explanation:Companies with good risk management systems benefit from the RBC approach by being required to keep lower capital reserves.
Q24.
What is the purpose of using Risk Based Capital (RBC) as a tool according to insurance regulators?

a.

To increase profits for insurance companies.

b.

To reduce the number of insurance policies sold.

c.

To ensure insurers have enough capital to meet various risks.

d.

To encourage risk-taking behavior among insurers.

Discuss
Answer: (c).To ensure insurers have enough capital to meet various risks. Explanation:Insurance regulators use Risk Based Capital (RBC) as a tool to ensure insurers have enough capital to meet various risks they assume in their business and protect the interests of policyholders.
Q25.
What is the potential consequence of an insurer being solvent but physically insolvent?

a.

Loss of accreditation from regulatory agencies.

b.

Inability to pay claims despite being technically solvent.

c.

Requirement to increase premium rates.

d.

Exemption from financial reporting requirements.

Discuss
Answer: (b).Inability to pay claims despite being technically solvent. Explanation:An insurer may be solvent but physically insolvent, meaning they may not have enough money to pay claims despite being technically solvent.
Q26.
What does ASM stand for in insurance calculations?

a.

Available Solvency Margin

b.

Adjusted Solvency Measure

c.

Assets to Liabilities Ratio

d.

Amortized Securities Measurement

Discuss
Answer: (a).Available Solvency Margin Explanation:ASM stands for Available Solvency Margin, which is calculated as the value of assets minus the value of liabilities.
Q27.
Which of the following assets is assumed to have zero value for ASM calculations?

a.

Equities

b.

Marketable securities

c.

Agent’s balances and outstanding premiums in India

d.

Computer equipment

Discuss
Answer: (c).Agent’s balances and outstanding premiums in India Explanation:Agent’s balances and outstanding premiums in India, along with several other assets listed, are assumed to have zero value for ASM calculations.
Q28.
How is the value of computer equipment computed for ASM calculations?

a.

Based on its market value

b.

Based on its book value

c.

Based on a percentage of its cost over a period of years

d.

Based on its depreciation rate

Discuss
Answer: (c).Based on a percentage of its cost over a period of years Explanation:The value of computer equipment for ASM calculations is computed based on a percentage of its cost over a period of years, starting from 75% in the year of purchase to zero percent thereafter.
Q29.
What is the purpose of calculating the solvency ratio in insurance?

a.

To determine the profitability of the insurer

b.

To assess the insurer's market share

c.

To indicate the insurer's level of financial stability

d.

To estimate the insurer's operational efficiency

Discuss
Answer: (c).To indicate the insurer's level of financial stability Explanation:The solvency ratio in insurance is calculated to indicate the insurer's level of financial stability. It is a measure of the insurer's ability to meet its obligations and maintain solvency.
Q30.
What is the regulatory requirement for maintaining the solvency ratio by insurers?

a.

Maintain a solvency ratio of at least 100%

b.

Maintain a solvency ratio of at least 75%

c.

Maintain a solvency ratio of at least 150%

d.

Maintain a solvency ratio of at least 200%

Discuss
Answer: (c).Maintain a solvency ratio of at least 150% Explanation:Regulators typically require insurers to maintain a solvency ratio of at least 150%, which serves as a trigger point for regulatory action and provides an early warning signal about the insurer's solvency.
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