Free CII Insurance Business and Finance (E92) Practice Questions

Sample Practice Questions

Try these 10 sample questions from the CII Insurance Business and Finance (E92) practice bank. Each includes the answer and explanation. Continue with the interactive practice above to review the full question set.

1. 1A group establishes an insurer that writes only the risks of its parent and affiliated companies. Which structure is this?

   1. A.A multi-owner captive
   2. B.A diversified captive
   3. C.A pure captiveCorrect answer: C
   4. D.A rent-a-captive

   Explanation: The source states: "Pure, or direct captive: a single parent captive writing only the risks of its owner or its affiliates." The single-parent ownership and restricted insured group identify a pure captive. Multiple unrelated owners, outside risks and renting capacity describe the other structures.

   Reference: HMRC General Insurance Manual: captive insurers — GIM11010, Types of captive insurer

2. 2Under the UK Corporate Governance Code, which role leads the board and is responsible for its overall effectiveness?

   1. A.Chief actuary
   2. B.ChairCorrect answer: B
   3. C.Finance director
   4. D.Company secretary

   Explanation: "The chair leads the board and is responsible for its overall effectiveness in directing the company." The chair leads the board; specialist executive and secretarial roles do not replace that responsibility.

   Reference: FRC UK Corporate Governance Code 2024 — Section 2, Principle F

3. 3A listed insurer departs from a Provision of the UK Corporate Governance Code. What does the comply-or-explain approach require?

   1. A.Report the departure without explaining its reasons
   2. B.Set out its reasons for the departureCorrect answer: B
   3. C.Omit the departure because Provisions allow flexibility
   4. D.Treat the auditor's approval as a substitute for explanation

   Explanation: "The Listing Rules also require companies to set out their reasons for non-compliance with a Code Provision." Flexibility does not remove the need for explanation. A bare report, omission or auditor approval cannot replace stating the company's reasons.

   Reference: FRC UK Corporate Governance Code 2024 — Reporting on the Code

4. 4Which insurance function normally evaluates an application and calculates the premium for accepting its risk?

   1. A.Internal audit
   2. B.UnderwritingCorrect answer: B
   3. C.Company secretarial
   4. D.Claims settlement

   Explanation: "calculate the price of insurance premiums" Pricing proposed insured risks is underwriting; assurance, board administration and settling existing claims serve different purposes.

   Reference: National Careers Service: Insurance underwriter — Day-to-day tasks

5. 5What is the central objective of general purpose financial reporting in the IFRS Conceptual Framework?

   1. A.Determine an exact share price for investors to trade at
   2. B.Provide useful information for decisions about supplying resourcesCorrect answer: B
   3. C.Specify the same investment decision for every financial-report user
   4. D.Guarantee cash repayment to every creditor supplying resources

   Explanation: "To provide financial information that is useful to users in making decisions relating to providing resources to the entity" Reporting supports resource-allocation decisions. It neither fixes market prices, replaces every internal report nor guarantees immediate cash conversion.

   Reference: IFRS Foundation: Conceptual Framework project summary — p. 5, Objective of financial reporting

6. 6Under IFRS 17's general measurement approach, what does the contractual service margin represent?

   1. A.The insurer's paid-up share capital
   2. B.Unearned profit in a group of insurance contractsCorrect answer: B
   3. C.The current market value of the investment portfolio
   4. D.The amount of all claims already settled in cash

   Explanation: "an amount representing the unearned profit in the group of contracts (the contractual service margin);" CSM represents unearned contract profit. Share capital, investment assets and paid claims are different financial items.

   Reference: IFRS Foundation: IFRS 17 Insurance Contracts — About, key principles

7. 7A business has current assets of £600,000 and current liabilities of £400,000. What is its current ratio?

   1. A.0.67:1
   2. B.1.5:1Correct answer: B
   3. C.2.5:1
   4. D.0.5:1

   Explanation: "Current ratio = current assets ÷ current liabilities" Current ratio=£600,000/£400,000=1.5:1.0.67 reverses the fraction;2.5 adds assets and liabilities before division;0.5 uses net current assets rather than all current assets.

   Reference: ACCA: Ratio analysis — Liquidity ratios

8. 8How does AM Best characterise a Best's Credit Rating?

   1. A.A legally binding guarantee of future solvency
   2. B.A forward-looking independent opinion of relative creditworthinessCorrect answer: B
   3. C.A statutory approval of every insurance policy
   4. D.An exact prediction of the date of a future default

   Explanation: "A Best's Credit Rating is a forward-looking independent opinion regarding an insurer's, issuer's or financial obligation's relative creditworthiness, which is subject to ongoing monitoring and surveillance." A rating is an independent comparative credit opinion, not a guarantee, regulatory product approval or dated default prediction.

   Reference: AM Best: Rating Service Definitions — Best's Interactive Credit Rating Service

9. 9Which arrangement is specifically described as a reinsurance captive?

   1. A.A fronting insurer passes premium and risk to a captiveCorrect answer: A
   2. B.A captive insures its parent's risks directly without a front
   3. C.Unrelated businesses jointly own an insurer for their risks
   4. D.An independent operator rents captive capacity for a fee

   Explanation: The source states: "Reinsurance captive: the premiums go to a fronting insurance company, which passes on the bulk of the premium and risk to a captive. See GIM11030." The fronting insurer receives the original premium before ceding most of it and the risk to the captive. The alternatives describe direct, multi-owner and rent-a-captive arrangements.

   Reference: HMRC General Insurance Manual: captive insurers — GIM11010, Types of captive insurer

10. 10Which contribution is expected of non-executive directors under Principle H of the UK Corporate Governance Code?

    1. A.Replace managers in performing every operating task
    2. B.Set their own remuneration without oversight
    3. C.Prepare each employee's daily work schedule
    4. D.Challenge constructively and hold management to accountCorrect answer: D

    Explanation: "They should provide constructive challenge, strategic guidance, offer specialist advice and hold management to account." Non-executives provide oversight and challenge rather than routine execution or unilateral self-remuneration.

    Reference: FRC UK Corporate Governance Code 2024 — Section 2, Principle H