Acronyms Flashcards
Desirable features of an exposure measure:
VENOM ADA 1-3
* Verifiable
* Easy to obtain
* Not open to manipulation
* Objective
* Measurable
- Acceptable to the market
- Defines the risk
- Acceptable to the PH
Reasons for using reinsurance
DASS LIFE 5-7
* Diversification
* Avoid single large losses
* Smooth results
* Solvency improvement
* Limit exposure to single events or accumulations
* Increase capacity to accept risk
* Financial assistance
* Expertise
Regulatory influences on assets held
TECH SCAM 9
* Types of assets that provider can invest in
* Extent to which mismatching allowed
* Currency matching requirements
* Hold certain proportion of total assets in specific class, eg government bonds.
* …
* Single counterparty maximum exposure
* Custodianship of assets
* Amount of any one asset used to demonstrate solvency restricted
* Mismatching reserve
Objectives of regulation
HEMP CREAM 9
* Help growth and competition
* Economies of scale in investment
* Mobilise long-term savings
* Protect PHs
- Create liquidity
- Reduce transition costs
- Efficiency of the financial system
- Allocate resources efficiently
- Manage risk
Disadvantages of regulation
EPIC BLOC 9
* Economies of scale fewer
* Premiums increased
* Investment return lower
* Costs
- Barriers of entry
- Less insurance coverage
- Opportunity cost
- Complex capital calculations
Reasons UW cycle exist
CREED(D)S 9
* Chasing hard rates
* Reduced insurance capacity after large losses
* Ease for new entrants
* Economics of scale maintained at all costs
* Deliberate under-pricing b key players to drive comp out
* Delays between selling and assessing profitability
* Simplistic capital regimes which encourage writing more business when rates are falling and vice versa
Uncertainty of claims experience:
JC CASTLED REPLICA 10
* Judicial decisions
* Crime rates
- CATs
- Attitude of PHs to claiming
- Sizes of claims volatility
- Types of cover provided
- Latent claims
- Escalation of claims
- Delays -> incidents/reporting/settlement
- RI risks
- Economic conditions -> external environment
- PH’s characteristics incl possible anti-selection
- Legislation/regulation
- Interpretation of wording
- Currency risks
- Accumulation risks
Quality and quantity of data:
: SEMI COMA 11
* Size of company
* Existence of legacy systems
* Management and staff
* Integrity of data systems
* Class of business
* Organisation’s nature
* Method of sale
* Age
* (RI vs DW)
IWD adv
PECS 11
* Pricing if no internal data
* Experience compared
* Credible
* Strategy (business)
IWD disadv
HOOD C 11
* Heterogeneity
* Opt out
* Out of date
* Detail and flexibility
* Crap in crap out contributors
Sources of data
TRAINERS GC 11
* Tables
* RI
* Abroad contracts
* Industry wide data
* National statistics
* Experience own
* Reporting and published accounts
* Similar contracts
- Government reports
- CRESTA
Data problems (historical)
QUERIED BEST ARCHER 11
Quality proposal form:
CURVED AAI 11
* Comprehensive (all UW info and rating factor info)
* Unambiguous, well designed questions
* Relevant and Reliable information produced
* Verify key policyholder information
* Easy Coding
* Data checks before inputted into a model
* Additional information dependent on claim size
* All information on proposal, endorsement, claim form must be held
* Interpretation must be limited
Features of good quality data:
COACH LUCID 11
* Completeness
* Objective and quantifiable as far as possible
* Accurate
* Consistent with previous data
* Homogonous grouping into model points
* Lowest level
o Such as date of birth rather than age at entry
* Up to date
* Checks should be able to be performed
* Integrated into one system
* Detail level and documentation appropriate
o Audit trail
Rating analyses: for existing class
REP REAP 12
* Recent periods: estimate ultimate cost claims
* Existing rates: estimate profitability (referebce to recent claims experience, removing abnormal features), compare actual vs expected
* Project forward to a new rating period, make assumptionns about future claims trends and inflation
- Review existing rating structure (relative levels of premiums charged for diff PHs), in-depth requires sophisticated models
- External data: compare final rates
- Adjust for lifetime value
- Profitability of old years on new rates, to assess profitability of business on the new rates if claims exp was to be the same as previous years
Expense analysis items:
COSMIC 12
* Computer costs
* One-off capital costs
* Salaries and related expenses
* Maintenance costs (heating, rent etc)
* Investment costs
* Claims handling costs
Reinsurance analyses:
CRAVE CAPES 12
* CAT RI
* Reinstatements
* Amount of risk to retain
* Value for money
* Extent of accumulations
- Cost of commutation
- Appropriateness of cover
- Profitability of layers
- Effects on capital
- Solvency of RI (credit risk)
Main reasons for monitoring business written:
DIAGRAM 12
* Double check assumptions (ACC)
* Influence the market
* Assess performance vs goals
* Gain market intelligence
* Regulators satisfy
* Assist with reserving
* Manage risk
Key policy experience items monitored:
CALMNESS Q 12
* Cancellations
* Alterations in premium rates
* Lapses
* Mix of business
* New business volumes
* Endorsements
* Strike rate (Quotes resulting in written business)
* Source (persistency/profitability)
- Quotation volumes
Features of a good system for monitoring business
ACCREDIT DOT 12
* Allow for key drivers
* Calculations not overly complex
* Clear results
* Results validated
* Easy to collect data
* Documented
* Inputs consistent
* Tailored output
- Data validated
- Output consistent over time and with other analyses
- Timely production of results
Investment and capital analyses:
RICE AD 12
* Risk assessment
* Investment policy
* Capital requirements
* Evaluate existing portfolio
* Allocate capital between classes
* Determine return on capital
Analysis of experience: Experience analyses
REP PEACE 12
* Risk exposure and aggregations
* Estimation of claim trends
* PH behaviour
- Pricing and sales of policies
- Environmental changes
- Anything else management require
- Claims reserve estimation/claims experience
- Expense analysis and allocation
Claims analysis: main claims analyses are
INNER CRAP 12
* Impact/incidence of large claims
* New claim types
* Nill claims
* Expenses vs indemnity cost
* Re-opened claims
- Changing frequency and severity
- Recoveries on gross claims
- Assessing accumulations
- Partial payments
Problems with inwards RI reserving:
SIGH CLUB 17
* Sparse data
* IT constraints
* Grouping of data
* Hetergoenous exposure
- Cedants use different reserving bases
- Longer reporting delays
- Upwards developments of claims
- Benchmarks less relevant
Grouping of data difficult:
Type of contract -treaty/fac
Type of cover- prop/non
Basis for cover
Line of business
Attachment point(XS)
Territory
Type of cedant
Adjustments to data BEFORE pricing
TRIM RILLS CRUNCH 18
* trends
* risk
* inflation
* mix
* RI
* IBNR
* Large claims
* Light experience
* Sales channel
* Cover
* Regulation
* UW
* Nil claims
* Claims handling
* Heavy experience
Considerations when using ILFs
A LAST CUT 18
* Assumptions
* Limits (nature of)
* ALAE
* Secular changes (not influenced by short-term factors)
* Trend
* Cover
* ULAE
* Territory/jurisdiction
Advantages of original loss curves
SIDE 18
* Simple to implement
* Internal consistency
* Data (OLCs can be used when no credible data)
* Easy to explain
Considerations when using exposure curves (first loss scales) for treaty pricing
additional to those when pricing directly or facultative business
A DISCO 18
* Availability of exposure curves
* Deductibles (treatment of)
* Insuring reinsurances
* Stacked limits
* CAT XL rating
* Original loss ratio (estimation)
Approaches to risk loading when pricing RI
PRIM
* [based on target loss or combined ratio]
* [based on profit target]
* Proportion of standard deviation of expected losses
* Required return on capital (based on)
* Investment-equivalent pricing
* Marginal impact on capital
Factors affecting choice of inflation rate
SLED
* Size of loss
* Location
* Excess layer or ground-up losses
* Drivers of inflation
Important considerations when pricing stop loss
RITA
* Regulatory minima
* Insuring reinsurance
* Terms of the stop loss
* Amount of recoverable layer returned by cedant
Modules in a CAT model
H-FIVE
* Hazard
* Financial analysis
* Inventory
* Vulnerability
* Event
Parameters for an earthquake model
TAMED
* Type of fault
* Area of fault rupture
* Moment magnitude
* Elapsed time since last rupture of that fault
* Depth (focal)
Main factors when setting investment strategy
- Characteristics of liabilities
- Asset considerations
- External influences
- Insurer specific considerations
A SAD CUTER INVESTOR
* Accounting considerations
* Size of assets relative and absolute
* Accrual of future liabilities
* Diversification
* Currency of liabilities
* Uncertainty of liabilities
* Term of liabilities
* Existing portfolio
* Risk appetite
* Investment objective
* Nature of liabilities
* Voluntary and regulatory restrictions
* ESG
* Solvency (statutory + internal + credit rating agencies)
* Tax treatment of investments
* Other strategies (competition)
* Return on assets
Why capital required?
REG CUSHION
* Regulatory requirements
* Expneses -> start up/develoment/expansions
* Guarantees can be offered (guranteed renewal premium?)
* cashflow management
* Unexpected events cushion
* Smooth results
* help show financial strength
* Investment freedom
* oppertunities to take advanatage of (Mergers&Aquistitions)
* New business strain financing
*credit rating
*meet other stakeholders requirements such as subordinated debt
Main data items for capital modelling
CRUDE CALF PUP
* Claims payment profiles (sizes, frequencies and settlement patterns)
* RI programmes
* Unpaid gross claims
* Details of operational risks (available in risk map)
* Expenses
* Credit exposures (broker balances as example)
* Asset values
* Large losses
* Future RI costs
* Planned premiums (gross and net)
* Unexpired premiums (gross and net)
* Planned RI programmes
Main assumptions that must be set for capital modelling
REDUCE DOG CRITIC
* RI share of ultimate claims and RI bad debt
* Exhaustion of RI and reinsurer
* Downgrade assumptions
* Ultimate gross claims including claims management costs
* Ceded premiums
* Expenses
* Dividends
* Operational losses
* Gross written premium
* CAT claims
* Reserve movements (gross) split by COB
* Inflation
* Tax
* Investment returns split by asset class
* Claims payment profiles
Model requirements:
SCARCER FILES_S_PP
* Simple enough, not too complex but adequately reflects risk profile
* Clear and complete output
o Reasonable output
* Adequately documented
* Range of implementation methods (flexible)
* Communicable
* Easy to understand by management
* Refinable and redevelopable
* Frequency of cashflows -> time horizon
* Independent verification
* Lengths of run not too long
* Expenses not too high
* Sensitivity and scenario testing applicable
* Sensible joint workings of variables -> dynamic
* Parameters appropriate
* Parameters identified and verifiable
