Ch 11 Risk and Uncertainty Flashcards
1
Q
Uncertainty
A
Uncertainty is the inability to predict the future with confidence.
2
Q
Risk
A
Risk is the possibility of variations in financial results, positive or negative.
3
Q
Uncertainty in Cashflows
A
Outgo:
Claims, Expenses, RI premium, Commissions
Inflows and assets:
reserves, premiums, RI recoveries, subrogation, third party recoveries, profit commissions, investment income
Uncertainty about quantum and timing of the income or outgo.
4
Q
Insurance company must be able to
A
- determine the price at which it is prepared to accept risk
- assess the reserves required so that it can determine profitability and provisions needed
- set capital to reduce the probability of becoming insolvent to within acceptable limits
5
Q
2 main headings of uncertainties faced by General insurer
A
uncertainty as to
- outcome of the business already written
- the premiums to charge in future to achieve desired financial result
6
Q
6 different items of experience, to subdivide the risks facing a company
A
- claim frequencies
- claim amounts
- expenses and commission
- investment income
- new business volumes
- lapses
7
Q
Way to subdivide the risks and uncertainty facing a company
A
- Random error
- Parameter error
- Data errors from systems and procedures
- Model error
- Adjustment factors
- Market conditions
- Portfolio movements
