Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Exam 5 > 1. Insurance Basics > Flashcards

1. Insurance Basics Flashcards

1
Q

Loss Adjustment expenses can be divided in which 2 components?

A
  1. Defense and cost containment (DCC)
  2. Adjusting and other (A&O) (Fees, claim adjuster salaries, overhead expenses)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Underwriting expenses is the sum of? (4 components)

A
  1. Commissions and brokerage
  2. Other acquisition Costs (ex. Marketing)
  3. Taxes, licenses, and fees
  4. General Expenses
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Estimate ultimate losses is the sum of?

A
  1. Reported Losses
  2. IBNR Reserve
  3. IBNER Reserve
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Fundamental Insurance Equation

A

Premium = Losses + LAE + UW Expenses + Profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Factors that should be considered when using historical experience to estimate components of the fundamental insurance equation

A
  1. Rate changes
  2. Operational Changes
  3. Inflationary pressures
  4. Change in the mix of business written
  5. Law changes
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Ratemaking based on fundamental insurance equation considers (2 elements)

A
  1. Ratemaking is prospective
  2. Balance in the fundamental insurance equation should be attained at the aggregate and individual levels
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Frequency

A

Nb Claims/Nb Exposures

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q
  1. Severity
  2. Paid Severity
  3. Reported Severity
A
  1. Losses/Nb Claims
  2. Losses on closed claims/Nb of closed claims
  3. Reported Losses/Nb of Reported claims
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Pure premium/Loss Cost

A

Losses/Nb Exposures = freq x sev

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Average Premium

A

Premium/Nb exposures

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q
  1. Loss Ratio
  2. Loss & LAE
A
  1. Losses/ Premium = Pure Premium/Average Premium
  2. (Loss + LAE)/Premium
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Loss Adjustment Expense Ratio

A

LAE (Incl. ALAE + ULAE)/Losses

Note :
LR (1 + LAE Ratio) = Loss & LAE Ratio

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Underwriting Expense Ratio

A

UW Expenses/Premium

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Operating Expense Ratio

A

UW expense ratio + LAE/Earned premium

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Combined Ratio

A

Loss ratio + LAE/EP + UW expenses/WP

= LR (1 + LAE Ratio) + UW expenses/WP

*If expenses incurred during the policy term are divided by EP :

Combined Ratio = Loss Ratio + OER

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Retention Ratio

A

Nb Policies Renewed/Nb Potential Renewal Policies

17
Q

Close Ratio (Hit ratio, quote-to-close ratio, conversion rate)

A

Nb Accepted Quotes/Nb quotes

18
Q

What are the 2 categories of UW Expenses? How are they treated differentlty in the UW Expense Ratio

A
  1. Incurred at policy’s inception (Commissions, other aquisition, taxes, licenses, fees) : Divided by written Premium
  2. Incurred during the policy term (General expenses) : Divided by earned Premium
19
Q

What are some use cases of the UW expense Ratio?

A
  1. Monitor uw ratio over time
  2. Perform the following comparisons
    - Actual change in the uw expense ratio to expected changes based on general inflation
    -Their own UW expense ratio to the ratios of other companies as a benchmark for policy acquisition and service expenditure
20
Q

3 criterias for exposures

A
  1. Proportional to expected loss
  2. Practical
  3. Considerate of historical precedence
21
Q

2 rating methods for large commercial risks

A
  1. Composite Rating
  2. Loss-rated composite rating
22
Q

Verifications of data (4)

A
  1. Consistency with financial statement data
  2. Consistency with prior data
  3. Reasonableness of data
  4. Clarity and accuracy of data definitions
23
Q

Data considerations (4)

A
  1. Limited Data
  2. Multiple currencies
  3. Large claims
  4. Terminology differences
24
Q

3 general goals of data aggregation

A
  1. Accurately match losses and premium for the policy
  2. Use the most recent data available
  3. Minimize the cost associated with gathering and retreving data
25
Q

Calendar year aggregation :
Description, Advantages (3) and disadvantages (2)

A

Description : Groups data according to calendar year (Transaction data), regardless of when policy was issued or accident year

Advantages :
1. Data is readily available once the calendar year ends
2. There is no future development (Prem, Exp, losses are fixed at the end of the year)
3. Data is easily accessible at no additional cost, as most insurers conduct financial reporting on a calendar year basis

Disadvantages :
1. Mismatch in timing between premiums and losses (Premium earned can be from policies written in previous years, losses may include payments and reserve on claims from policies issued years ago)
2. Inability to capture major event development, due to fixed nature of data

26
Q

Accident year aggregation : Advantages (3) and disadvantages (2)

A

Description :
Groups data according to accident date (Prem and exp : same as calendar year)

Advantages :
1. Easy to achieve and easy to understand
2. Better match of premiums and losses than calendar year (Losses paid for claims that occured during the year are compared to premiums earned during the same year)
3. Useful for identifying the impact of ME/ Change due to econ./ regulatory forces

Disadvantages :
1. Requires estimation of future development for known losses that are not closed at the end of the year
2. Provides a less accurate matching in premiums and losses compared to the policy/uw year aggregation method

27
Q

Policy year aggregation (UW year aggregation) : Description, Advantages (2) and disadvantages (2)

A

Description :
Groups data according to which year policies were written

Advantages :
1. Best match between prem & losses
2. Useful for identifying the impact of uw or pricing changes

Disadvantages :
1. Longer development time (Exposures are not fully earned until after the end of the policy year)
2. Difficulty in understanding and isolating the impact of a significant event (Catastrophe, court ruling, …)

28
Q

Report year aggregation : Description, Advantage (1) and disadvantage (1)

A

Description :
Groups data according to when claims were reported, typically used for claims-made policy, where coverage depends on report date of claims

Advantage:
- Provides more stable data than accident year aggregation (Nb of claims is fixed at the end of the year)

Disadvantage :
- Development on incurred but not reported claims is excluded

29
Q

The aggregation of losses is based on which 3 factors?

A
  1. Choice of relevant statistics (Ex. paid or reported losses)
  2. Data aggregation method (calendar, accident, policy, report)
  3. Period of time, determined by :
    - Accounting Period ( Specific timeframe in which losses are recorded, often consistent with financial statement )
    - Valuation Date ( Date at which losses are assessed for analysis, can be different from accounting period, can be expressed at nb months after start/end of the accounting period)
30
Q

Written Exposure (Relation ship for both individual & group policies, for CY&AY)

A

Written exposure = EE + EoY UE - BoY UE

31
Q

Written exposure (Relationship for policy year)

A

WE = EE + UE (BoY = 0)

Exam 5 (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions