0 - General Insurance Overview Flashcards
Why do general insurers exist?
- To meet a need:
- —->Small known outlay vs risk of large loss
- —->Pass on risk
- To make profits
Why do some insurance companies quote higher premiums than other insurance companies for car insurance for the same individual and period of cover?
- Different estimates of the expected claim amount
- Different levels of expenses, commission, reinsurance costs, investment returns and profit
- Some insurers don’t want the business, so quote too high
- Others may undercharge, hoping the policyholder will stay for years and that they will make money later
- Different forms of cover may have been requested
quotations - Could have related to driving in different countries
What are the roles of actuaries in GI sector?
- Capital allocation
- Risk assessment, eg modelling catastrophic events
- Strategic management of the business
- Determining a suitable investment strategy
- Assessing reinsurance requirements
- Expense allocation
- Assessing the effectiveness of marketing campaigns
- Assisting with the early settlement of liabilities in the event of a wind-up.
What are the three components of pricing?
- decide pure risk premium
- decide office premium
- decide other adjustments
What is pure risk premium based on?
What do we adjust it for?
Pure risk premium is based on:
- past experience
- adjustments to past experience
It is adjusted for:
- unusual experience
- trends
- inflation
- incomplete past data
- changes in risks
What is the office premium? What are some other considerations do we make?
Simply the pure risk premium adjusted for:
- expense loading
- reinsurance premium and recoveries
- profit
- investment income
Other adjustments we consider:
- business objectives of insurer
- competition
- insurance cycle
- reaction of policyholders
- no claims discounts
What are technical reserves about?
- For all business written in the PAST, claims occur and wrt these, insurers hold OUTSTANDING CLAIMS RESERVES
- There is usually a delay b/w reporting & settlement of claims
- For active policies insurers hold UNEXPIRED RISK RESERVES for cover that is yet to be provided
What are the types of outstanding claims reserves & how are they estimated?
- Reported claims
- IBNR
- IBNER (incurred but not enough reported)
- Reopened claims
- Claims expenses
Estimated using:
- Statistical methods (from high vol. of similar policies)
- Case estimates (from loss adjustors)
What are the types reserves for unexpired policies?
- Unearned premium reserve (UPR)
- Unexpired risk reserve (URR)
- Additional unexpired risk reserve (AURR)
- Claims equalisation reserves (smoothing profits)
- Catastrophe reserves (held by insurers w-out reinsurance in place)
What is the role of the insurer?
- Accept risks
- Management of risks through using:
- > Premiums
- > Reserving
- > Product design
- > Reinsurance
- > Accounts
What is the defn. of unearned premium reserve (UPR)?
UPR = proportion of unexpired risk x (premium - initial acquisition costs)
- Assumes that incidence of risk is uniformly spread over the lifetime of policy
What is the Unexpired Risk Reserve Defn. ?
Expected cost of claims & expenses from unexpired proportion of the policy
What is Additional Unexpired RIsk Reserve (AURR)?
AURR = UPR - URR
- only formed when policy is believe to be underpriced
What are free reserves?
Defn. : Excess assets over technical reserves + regulatory solvency margin
Also called:
Shareholders’ funds
Capital employed
Solvency margin (min. solvency margin required by regulations)
What does the minimum regulatory solvency margin depend on?
- Volume of business
- Risks involved
-> Variability of claims
-> Management style (risk-averse or not, reinsured or
not?)