IIQE Paper 1 Principles and Practice of Insurance Examination Quiz 12

Question 1 of 30

1. Question

During a pending application for registration as a Registered Person with the Insurance Authority (IA), an appointing Principal becomes aware that the applicant has recently been involved in a significant regulatory investigation in a different financial sector. According to the relevant regulatory framework governing insurance intermediaries in Hong Kong, what is the immediate obligation of the appointing Principal?

To promptly notify the Insurance Authority of the applicant's recent regulatory involvement.
To advise the applicant to withdraw their application and reapply later.
To wait for the Insurance Authority to request additional information before disclosing the matter.
To assess the potential impact of the investigation on the applicant's fitness and properness without informing the IA.

Question 2 of 30

2. Question

During a comprehensive review of a process that needs improvement, a registered insurance agent is discussing a complex investment-linked insurance product with a prospective client. The agent feels uncertain about certain technical aspects of the product’s performance projections. Under the relevant Hong Kong regulations governing the conduct of registered persons, what is the most appropriate course of action for the agent in this situation?

Seek clarification and guidance from their principal or appointing insurance agent before proceeding with the detailed explanation.
Proceed with explaining the policy coverage as best as they can, focusing on the general benefits.
Disclose their registration number to the client and mention they are acting on behalf of their principal.
Assure the client that all information provided will be treated as confidential and handled in accordance with privacy ordinances.

Question 3 of 30

3. Question

During a comprehensive review of a process that needs improvement, an exclusive agent for a product discovers that their principal has entered into an agreement with a second agent for the same territory, violating the exclusivity clause of their existing contract. The agency agreement has a remaining term of two years. Under the principles of agency law relevant to the IIQE syllabus, what is the agent’s most appropriate course of action?

Immediately cease all performance under the agreement and pursue compensation for the anticipated profits for the remaining two years.
Continue performing the agency duties while formally notifying the principal of the breach and requesting a resolution within 30 days.
Seek legal counsel to negotiate a revised commission structure that reflects the reduced exclusivity.
Accept the appointment of the second agent and continue fulfilling their own contractual obligations without seeking recourse.

Question 4 of 30

4. Question

During a comprehensive review of a process that needs improvement, a business owner discovers a proposed agreement with a supplier that involves the sale of goods known to be counterfeit. Under the principles of contract law relevant to the IIQE syllabus, what is the most likely legal consequence of such an agreement?

The contract is voidable at the option of the supplier.
The contract is valid but subject to regulatory penalties.
The contract is enforceable, provided both parties consent.
The contract is void due to illegality.

Question 5 of 30

5. Question

During a comprehensive review of a process that needs improvement, an insurance underwriter discovers a proposed policy designed to cover financial transactions related to an activity explicitly outlawed by Hong Kong legislation. According to the principles of contract law relevant to the insurance industry, what is the most likely legal status of such a policy?

The policy is void due to illegality, rendering it unenforceable.
The policy is valid but subject to specific regulatory oversight due to its nature.
The policy is enforceable as long as the parties involved are in agreement.
The policy is considered a grey area and may be enforceable depending on the interpretation of the law.

Question 6 of 30

6. Question

During a comprehensive review of a process that needs improvement, an insurer is examining the procedures for handling customer grievances. A policyholder, dissatisfied with the insurer’s final response to their claim dispute, has escalated the matter to an external body. This external body, which comprises a panel with a chairman independent of the industry and members nominated by industry associations and consumer groups, has investigated the case. If this panel finds in favour of the policyholder, what is the maximum financial award it can legally mandate the insurer to pay, and what recourse does the insurer have against this decision?

HK$800,000, with no right of appeal for the insurer
HK$1,000,000, with the insurer having the right to appeal to the Insurance Authority
HK$500,000, with the insurer able to contest the decision in a higher court
HK$800,000, with the insurer having the right to appeal to the Insurance Claims Complaints Bureau

Question 7 of 30

7. Question

During a comprehensive review of a process that needs improvement, a Hong Kong-incorporated financial institution discovers that one of its overseas subsidiaries, operating in a jurisdiction with significantly different data privacy laws, is unable to fully implement the CDD and record-keeping procedures mandated by Hong Kong’s AML/CFT framework. What are the primary actions the financial institution must take in this situation, according to the relevant guidelines?

Inform the relevant Hong Kong regulator of the non-compliance and implement enhanced measures to mitigate the associated ML/TF risks.
Cease all operations of the overseas subsidiary until full compliance with Hong Kong regulations can be achieved.
Request a waiver from the Hong Kong regulator and rely solely on the local jurisdiction's AML/CFT regulations.
Modify the group's AML/CFT policy to align with the overseas subsidiary's local legal constraints without further action.

Question 8 of 30

8. Question

During a comprehensive review of a process that needs improvement, an insurance company identified a situation where a policyholder’s property was damaged due to the negligence of a third-party contractor. The insurer indemnified the policyholder for the full extent of the loss, amounting to HK$100,000. The policyholder also had a separate contractual agreement with the contractor that stipulated a penalty of HK$20,000 for delays, which the contractor also caused. Under the principle of subrogation, what is the maximum amount the insurer can recover from the third-party contractor?

HK$100,000
HK$120,000
HK$80,000
HK$20,000

Question 9 of 30

9. Question

When an insurance company is establishing a new agency force to distribute its products, what is the primary regulatory objective it must ensure is met for each individual agent before they can legally solicit business, as stipulated by relevant Hong Kong regulations governing insurance intermediaries?

Confirmation that each agent has completed the insurer's internal product knowledge training program.
Verification that each agent has successfully passed the Insurance Agents Registration Examination.
Ensuring that each agent is duly registered with the Insurance Authority.
Securing a signed agreement from each agent acknowledging adherence to the insurer's code of conduct.

Question 10 of 30

10. Question

When an insurance company lacks a distinct investment department, which of the following functions typically falls under the purview of the accountant, carrying significant implications for the insurer’s financial health and operational continuity?

The strategic allocation and oversight of the company's financial assets to balance security, yield, and cash flow.
The meticulous documentation of all incoming premium payments and outgoing claims settlements.
The systematic process of reminding policyholders about outstanding premium payments.
The development and implementation of internal controls for daily transaction processing.

Question 11 of 30

11. Question

During a period of significant change where stakeholders are unable to communicate effectively, a neighbour, noticing that a household insurance policy is about to lapse and the insured is incapacitated in hospital, pays the renewal premium to prevent a lapse. Under the principles of agency law relevant to the IIQE syllabus, what is the most appropriate legal basis for the neighbour’s authority to act in this situation?

Authority of necessity
Agency by estoppel
Implied authority through conduct
Delegated authority from a third party

Question 12 of 30

12. Question

When an insurance company indemnifies an insured for a loss caused by a negligent third party, what fundamental legal principle empowers the insurer to pursue the responsible third party for reimbursement of the paid claim amount, up to the extent of the indemnity provided?

Subrogation
Indemnity
Contribution
Utmost Good Faith

Question 13 of 30

13. Question

During a regulatory review of an insurance broking firm, it was noted that the firm operates as a limited company. The review also confirmed that the firm’s financial statements accurately reflect its assets and liabilities according to generally accepted accounting principles in Hong Kong. Which of the following financial requirements must this incorporated insurance broker strictly adhere to at all times to remain compliant with the relevant regulations?

Maintain a minimum net asset value of HK$100,000 and a minimum paid-up share capital of HK$100,000.
Maintain a minimum net asset value of HK$100,000, excluding intangible assets.
Maintain a minimum paid-up share capital of HK$100,000, regardless of net asset value.
Maintain a minimum net asset value of HK$200,000, encompassing both paid-up capital and reserves.

Question 14 of 30

14. Question

When an insurance company indemnifies an insured for a loss caused by a negligent third party, what fundamental legal principle empowers the insurer to seek recovery from that third party for the amount paid out?

Subrogation
Indemnity
Suretyship
Salvage

Question 15 of 30

15. Question

During a comprehensive review of a process that needs improvement, an authorized insurer operating as a captive insurer in Hong Kong is found to have a paid-up capital of HK$2 million. Under the Insurance Companies Ordinance (Cap. 41), what is the minimum paid-up capital requirement for such an entity?

HK$2 million
HK$10 million
HK$20 million
HK$5 million

Question 16 of 30

16. Question

During a comprehensive review of a process that needs improvement, an insurance regulator is examining an insurer’s financial stability. A significant focus of this review is the insurer’s reliance on reinsurance. Which of the following actions by the insurer would be most directly scrutinized by the regulator in relation to the Insurance Ordinance’s requirements for financial security and prudent management of reinsurance?

Establishing a robust program for reinsuring a substantial portion of its general business liabilities with a reinsurer that is part of the same corporate group.
Implementing a new customer relationship management system to enhance client servicing efficiency.
Developing a marketing campaign to attract more policyholders for its long-term insurance products.
Investing a significant portion of its surplus in high-yield corporate bonds to boost investment returns.

Question 17 of 30

17. Question

During a comprehensive review of a process that needs improvement, a registered technical representative (TR) for a travel insurance agency discovers they have not met their annual Continuing Professional Development (CPD) obligations for the current assessment year. According to the relevant regulations, what is the most likely initial consequence for this TR’s registration status?

Their registration will be revoked for a period of three months, and they will need to complete the outstanding CPD hours before re-registration.
They will be fined a fixed amount by the Insurance Authority and must complete double the required CPD hours in the next assessment year.
Their registration will be suspended until they provide proof of completing the required CPD hours, with no additional penalty.
They will be required to complete the outstanding CPD hours within the next assessment year without any immediate impact on their registration status.

Question 18 of 30

18. Question

During a comprehensive review of a process that needs improvement, it was noted that the finance division was being tasked with evaluating the potential risks associated with new insurance offerings and coordinating the market introduction of these products. Which two of the following activities are most likely outside the primary responsibilities of an insurance company’s accounts department?

Assessing the insurability of a proposed new risk and orchestrating the launch of a novel insurance policy.
Processing premium payments and managing the settlement of claims.
Reconciling bank statements and preparing financial statements.
Auditing internal financial records and managing accounts payable.

Question 19 of 30

19. Question

During a comprehensive review of a process that needs improvement, an insurance company is identified as operating across multiple distinct business lines. Specifically, this entity underwrites both life assurance policies and property damage cover. Under the framework of Hong Kong’s insurance regulatory landscape, what classification would accurately describe this insurer’s operational scope?

A composite insurer
A specialist insurer
A claims adjusting firm
A reinsurer

Question 20 of 30

20. Question

During a comprehensive review of a process that needs improvement, an insurer is examining its oversight responsibilities concerning its constituent members. According to the Insurance Ordinance’s general rules for the authorization of insurers, what is a key obligation the insurer must fulfill regarding its members’ financial reporting and auditor assessments?

Confirm receipt of all financial statements and auditor's reports from members, and ensure no unlisted adverse statements or qualifications appear in these reports.
Verify that each member's financial statements are audited by an independent third-party auditor licensed in Hong Kong.
Ensure that all members have submitted their financial statements and auditor's reports, and that these reports are publicly available for inspection.
Ascertain that members' auditor's reports confirm compliance with all solvency margin requirements and that no qualifications are present.

Question 21 of 30

21. Question

When dealing with a complex system that shows occasional deviations from expected performance, an insurer offering general insurance policies would typically rely on which underwriting principle to manage evolving risk exposures over time?

Periodic risk re-evaluation during renewal periods
A single, comprehensive risk assessment at policy inception
Reliance solely on historical claims data without ongoing monitoring
Underwriting based on the insured's stated intentions rather than actual practices

Question 22 of 30

22. Question

During a comprehensive review of a process that needs improvement, an insurance intermediary, registered as a Responsible Officer, is contacted by the Insurance Authority’s regulatory body (IARB) to submit evidence of their adherence to Continuing Professional Development (CPD) requirements. The Responsible Officer, despite multiple reminders, fails to provide the requested documentation. What is the most likely immediate consequence for this Responsible Officer’s registration status?

Their registration will be revoked for a period determined by the IARB, and future registration applications will be contingent on submitting proof of compliance.
They will be issued a warning and a grace period to submit the outstanding CPD hours before any disciplinary action is taken.
Their registration will be suspended for a fixed period of three months, after which they can re-register without further checks.
They will be required to complete double the outstanding CPD hours within one month to avoid any penalties.

Question 23 of 30

23. Question

When dealing with a complex system that shows occasional inconsistencies in the registration and conduct of insurance intermediaries, which body is primarily responsible for investigating complaints, managing registration processes, and reporting potential breaches to the regulatory authority, as outlined by the relevant code and ordinance?

The Insurance Agents Registration Board (IARB)
The Hong Kong Federation of Insurers (HKFI) directly overseeing all disciplinary actions
The Insurance Authority (IA) conducting initial investigations for all intermediary misconduct
The Principal of the insurance agent initiating all internal disciplinary reviews

Question 24 of 30

24. Question

During a comprehensive review of a process that needs improvement, an insurance broker is found to be diligent in providing clients with policy documents and disclosures. However, the Insurance Authority (IA) has flagged a concern regarding the broker’s adherence to regulatory reporting. Which of the following submissions is primarily intended to confirm the broker’s compliance with the IA’s minimum operational and financial standards?

An auditor's report confirming adherence to minimum requirements
A list of all business cards distributed with the broker's registration number
Copies of all Customer Protection Declarations for new long-term policies issued
A detailed log of client requests for the broker's registration number

Question 25 of 30

25. Question

When considering the application of Hong Kong’s Personal Data (Privacy) Ordinance, which of the following best describes its jurisdictional reach regarding data controllers?

It governs the handling of personal data by any entity, regardless of whether it operates within the public or private domain.
Its provisions are exclusively enforced within government agencies and public service organizations.
It primarily targets private sector businesses and excludes public sector data handling practices.
It is only applicable to organizations that are incorporated outside of Hong Kong and process data locally.

Question 26 of 30

26. Question

During a comprehensive review of a process that needs improvement, a team identifies a potential event that could lead to financial detriment for the company, but there is no possibility of a financial benefit arising from this event. According to insurance principles, how would this type of risk be best categorized?

Pure risk
Speculative risk
Fundamental risk
Particular risk

Question 27 of 30

27. Question

When considering the regulatory framework for the handling of personal information within Hong Kong, which of the following accurately describes the entities subject to the Personal Data (Privacy) Ordinance?

All organizations, whether governmental or commercial, that collect and process personal data.
Only government departments and public bodies are bound by the Ordinance.
The Ordinance exclusively governs private sector businesses and their data handling practices.
The Personal Data (Privacy) Ordinance has no jurisdiction over any sector in Hong Kong.

Question 28 of 30

28. Question

During a comprehensive review of a process that needs improvement, a situation arises where Mr. Chan, a licensed insurance agent, has consistently allowed his associate, Ms. Lee, to interact with clients and make representations about policy terms, even though she is not formally appointed as an agent for all the products she discusses. Mr. Chan is aware of these interactions and has not intervened. A client, relying on Ms. Lee’s assurances about a specific policy’s coverage, proceeds with the purchase. Later, Mr. Chan attempts to disclaim responsibility for Ms. Lee’s statements regarding that policy. Under the principles of agency law relevant to insurance, what is the most likely legal outcome if the client pursues a claim based on Ms. Lee’s assurances?

Mr. Chan will be bound by Ms. Lee's representations due to agency by estoppel, as his conduct led the client to believe she was his authorized representative.
Mr. Chan will not be bound because Ms. Lee lacked explicit written authority to represent him on all the products discussed.
The client's claim will fail as Ms. Lee was not a formally appointed agent for the specific policy in question, negating any agency relationship.
Mr. Chan can only be held liable if he directly benefited from the transaction, otherwise, the responsibility lies solely with Ms. Lee.

Question 29 of 30

29. Question

During a comprehensive review of a process that needs improvement, a travel insurance agent discovers that one of their technical representatives has not fulfilled the annual Continuing Professional Development (CPD) hours as stipulated by the Insurance Authority. According to the relevant regulations, what is the minimum annual CPD requirement for this individual and what is a potential consequence of non-compliance?

3 CPD hours annually; potential revocation of registration for a specified period.
5 CPD hours annually; a warning letter from the Insurance Authority.
2 CPD hours annually; mandatory retraining on product knowledge.
4 CPD hours annually; a temporary suspension of business operations.

Question 30 of 30

30. Question

When dealing with a participating life insurance policy, which of the following represents the primary method by which a policyholder receives a share of the insurer’s profits?

Bonuses
Rebates
Commissions
Underwriting profits