Actuarial processes and accounting Flashcards
Actuarial role and purpose
Ultimate value of losses incurred but not reported(IBNR)
Predictive modeling
Contribute in designing new insurance products
Cat management
Loss projections
Reserving- forecasting ultimate losses
Ratemaking- rates and regulation/avoid adverse selection
Case Reserves
Claim reserve- The amount adjuster placed on a claim that has not yet been paid
IBNR- incurred but not reported
Liability for an unpaid claim not reflected in the case reserve estimate for an individual loss
Pure IBNR
Incurred but not reported as of the evaluation date. No basis for establishing a reserve
Board or Bulk IBNR
Additional development on known claims or an increase in reserves as the claim is investigated
Ultimate losses
Total amount paid after claim is settled
IBNR + Case Reserves + Paid Losses
Incurred losses
Total amount of claim and reserves during a particular period of time
Incurred Losses= Plaid Claims + Reserve
Loss Reserves
Estimation of liability for unpaid claims
Loss Reserves= IBNR + Case Reserves
Allocated loss adjustment expense
Other expenses of a claim such as outside legal counsel
Unallocated loss adjustment expenses
Salary, overhead or other related adjustment expenses
Loss triangles
Determines loss development for a group of risks
Takes loss info and shows a roadmap of how it got there in equal slices of time
Types: Paid loss (severity), incurred loss (severity), claims count (frequency), claim pay out (timing)
Loss development factors
Obtained through actuarial consultants, industry experience or insurance company financial statements.
apply to current valuation of losses to determine an estimate of ultimate losses
Case reserve processes
Stair-stepping- adjuster changes values with additional information
Bulk reserving- Added to a group of claims that close quickly(less than 30 days)
Factor reserves- placed on individual claims where the reserve is the same for similar claims
Insurance decisions affected by reserves
Insurance pricing, safety programs, merger and acquisition negotiations, financial reporting
Statutory Accounting- STAT
Financial reporting mandated by the state. Very conservative. Emphasizes liquidity and solvency.
Income recorded over policy term
Expenses recorded when incurred
Intangible and non liquid assets are not recognized
Retained earnings recorded as policyholder surplus
GAAP- generally accepted accounting principles
More conventional accounting. Ok to Mutual Companies. Income recorded at time of sale Expenses recorded over policy term Assets in balance sheet Retained earnings are stockholder equity
SEC regulation
Protects client
Publicly held companies subject to SEC regulation
Mutuals not subject to
Profitability ratios
Basic equations used to monitor and evaluate insurance operations
Cost + Profit = Price
Underwriting expense ratio
Measures how much premium dollar is used to pay for company operating expenses
Combined ratio
Measure of profitability of a book of business
Losses + LAE + UWExpenses /Earned Premium = Combined Ratio
Combined ratio exceeding one or 100 indicates losses
