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IFoA SA2 Life Insurance Specialist Advanced practice questions are available now; exam metadata is being verified.
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Under a market-consistent embedded value, the cost of residual non-hedgeable risks (CRNHR) is included to:
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2026 Statistics
Key Facts: IFoA SA2 Exam
3h20m
Exam Duration
IFoA SA2 syllabus
~300
Credit Value
IFoA Fellowship structure
Written
Exam Format
IFoA SA2 syllabus
99.5%
SCR Confidence
Solvency UK
4%
Risk-Margin CoC
Solvency UK reforms
100%
FSCS Life Cover
FSCS rules
SA2 is an advanced IFoA Fellowship subject assessed by a single 3 hour 20 minute online written paper of long-answer, case-based questions, not multiple choice. Building on SP2, it covers UK life products, PRA and FCA regulation including the Consumer Duty, Solvency UK technical provisions, SCR, the matching adjustment and risk margin, IFRS 17, with-profits management and the PPFM, unit-linked business, embedded value, reinsurance, taxation, and capital and asset-liability management. This free bank provides 100 advanced multiple-choice questions as knowledge prep aligned to the 2026 syllabus and the latest Solvency UK reforms.
Sample IFoA SA2 Practice Questions
Try these sample questions to test your IFoA SA2 exam readiness. Each question includes a detailed explanation. Start the interactive quiz above for the full 100+ question experience with AI tutoring.
1Under the UK regulatory architecture, which body is responsible for the prudential supervision of insurers, including setting capital requirements such as the Solvency Capital Requirement?
A.The Prudential Regulation Authority (PRA)
B.The Financial Conduct Authority (FCA)
C.The Financial Reporting Council (FRC)
D.The Pensions Regulator (TPR)
Explanation: The PRA, part of the Bank of England, is the prudential regulator for insurers and banks and sets and supervises capital and solvency requirements. The FCA is the conduct regulator. Insurers are therefore 'dual-regulated' by both the PRA and FCA.
2An insurer must treat customers fairly and ensure products deliver fair value to identified target markets. Which FCA regime most directly imposes these outcomes-based obligations on UK life insurers?
A.The Senior Managers and Certification Regime
B.The Consumer Duty
C.The Matching Adjustment
D.The ORSA
Explanation: The FCA's Consumer Duty (in force from July 2023) sets a higher standard of consumer protection through cross-cutting rules and four outcomes covering products and services, price and value, consumer understanding and consumer support. It is the principal conduct framework driving fair-value assessments.
3Under Solvency II / Solvency UK, technical provisions for business that cannot be reliably replicated by a hedging portfolio are calculated as the sum of which two components?
A.Statutory reserve plus a resilience reserve
B.Gross premium reserve plus a Zillmer adjustment
C.Best estimate liability plus a risk margin
D.Market value of assets plus a prudential margin
Explanation: For non-hedgeable risks, technical provisions equal the best estimate liability (probability-weighted present value of future cash flows on a market-consistent basis) plus a risk margin computed using a cost-of-capital approach. This contrasts with replicable cash flows valued directly at market prices.
4Following the Solvency UK reforms, the cost-of-capital rate used in the risk margin calculation for long-term insurance business was changed from 6% to which value?
A.3%
B.5%
C.8%
D.4%
Explanation: As part of the post-Brexit Solvency UK reforms, the risk margin cost-of-capital rate was reduced from 6% to 4% and a tapering (lambda) factor was introduced, cutting the risk margin for long-term life business by roughly 65%. This released capital to support, for example, annuity and bulk-purchase-annuity writing.
5The Solvency II Standard Formula Solvency Capital Requirement is calibrated to which confidence level over a one-year horizon?
A.99.5% VaR
B.95.0% VaR
C.99.0% VaR
D.99.9% VaR
Explanation: The SCR corresponds to the Value-at-Risk of basic own funds at a 99.5% confidence level over one year, i.e. the capital sufficient to withstand a 1-in-200-year adverse event. Internal models must demonstrate calibration to this same standard.
6Which feature is the defining eligibility condition for an insurer to apply the Matching Adjustment to a portfolio of annuity liabilities?
A.The liabilities must be unit-linked with no guarantees
B.The assets and liabilities must have closely matched, fixed and predictable cash flows held to maturity
C.The portfolio must be reinsured on a quota-share basis
D.The liabilities must include significant lapse optionality
Explanation: The Matching Adjustment lets a firm add an illiquidity premium to the discount rate where it holds a ring-fenced portfolio of assets with cash flows that closely match the fixed, predictable liability cash flows and is held to maturity. This is why it suits non-profit annuities, which lack surrender options.
7Within the Matching Adjustment calculation, the portion of the asset spread attributed to the cost of defaults and downgrades — and therefore deducted before crediting the MA — is known as the:
A.Volatility adjustment
B.Ultimate forward rate
C.Fundamental spread
D.Symmetric adjustment
Explanation: The MA equals the asset spread over the risk-free rate less the fundamental spread, which represents the cost of credit risk (probability of default and cost of downgrade). Only the residual illiquidity premium is credited, so the firm is not rewarded for bearing retained credit risk.
8What does the Transitional Measure on Technical Provisions (TMTP) achieve for a UK life insurer?
A.It permanently exempts annuities from the SCR
B.It replaces the risk margin with a market-value margin
C.It removes the need to hold a Minimum Capital Requirement
D.It phases in the increase in technical provisions on transition to Solvency II over a 16-year run-off
Explanation: TMTP smooths the impact of moving in-force business onto the Solvency II valuation basis by allowing the increase in technical provisions to be amortised on a straight-line basis over the 16 years from 1 January 2016 to 2032. It eases the capital strain of transition rather than removing any requirement.
9An insurer's Solvency II own funds are 1,200m and its SCR is 800m. What is its SCR coverage (solvency) ratio?
A.150%
B.66.7%
C.100%
D.200%
Explanation: The SCR coverage ratio is eligible own funds divided by the SCR: 1,200 / 800 = 1.5, or 150%. A ratio above 100% means the firm holds capital in excess of its 1-in-200 requirement; 150% indicates a comfortable surplus buffer.
10Under the Solvency II tiering of own funds, which item would typically qualify as the highest-quality Tier 1 capital?
A.Subordinated debt with a 10-year maturity
B.Ordinary paid-up share capital and the associated reconciliation reserve
C.A contingent loan repayable on demand
D.An ancillary own-fund letter of credit
Explanation: Tier 1 unrestricted own funds comprise the highest-quality, fully loss-absorbing and permanently available capital — chiefly ordinary paid-up share capital, share premium and the reconciliation reserve. Lower tiers contain items with maturity, redemption features or limited loss absorbency.
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