Chapter 0 Glossary Flashcards
Act of God
An event, such as a storm or flood, that is unexpected and outside human control. From the perspective of insurers, it is a cause of insurance losses.
Catastrophe
In the context of general insurance a catastrophe is a single event that gives rise to an exceptionally large aggregation of losses.
Catastrophe reserve
This is a form of aggregate excess of loss reinsurance providing coverage for very high aggregate losses arising from a single event, that may be spread over a number of hours; 24 or 72 hour periods are commonly used.
Claim
The word claim has a variety of meanings. The most common are:
- as a noun: an assertion by a policyholder that an insurer is liable to make a payment in accordance with the terms of a policy
- as a verb: to make a request for payment from an insurer.
Claims equalisation reserve
An equalisation reserve is a reseve built up (generally from profitable years) as a cushion against periods with worse than average claims experience.
Claims handling expenses
The expenses incurred in handling and settling claims are known in some countries, including South Africa and the UK, as claims handling expenses, the equivalent term in the USA (and increasingly elsewhere) being “loss adjustment expenses”.
Claims incurred
Incurred claims refers to the total amount paid on a cohort of claims up to a specified valuation date plus the total of all case estimates on these claims as at the valuation date.
It is used in contrast to paid claims, which refers only to the amounts paid up to the valuation date.
Incurres claims usually include ALEA (claims handling expenses).
Claims reported
Claims incurred that have been reported to the insurer. The term is often used in relation to those claims reported during the accounting period. It may refer to the number of claims themselves or the cost of claims that have been reported.
Cover note
A note issued by an insurance company to confirm the existence of insurance cover pending the issue of formal policy documentation.
Earned premiums
The total premiums attributable to the exposure to risk in an accounting period; they can be gross or net of adjustment for acquisition expenses and gross or net of reinsurance.
Event
An occurrence that may lead to one or more claims.
Free reserves
The excess of the value of an insurer’s assets over its technical reserves and current liabilities. Also known as the solvency margin and sometimes, in the case of a proprietary insurer, referred to as shareholders’ funds or net asset value.
Inception date
This is the date from which the insurer assumes cover for a risk. This may or may not coincide with the premium collection date.
Insurance certificate
A certificate provided by an insurer to confirm that the policyholder has insurance cover.
Insured
The person, group or property for which an insurance policy is issued.
Lapse
When a policyholder, having been invited to renew the policy, does not do so, the policy is said to lapse.
Loss
This may signify:
- the financial loss suffered by the policyholder
- the amount of the insurance claim
- the opposite of “profit” in relation to accounts
Loss expense reserve
Another expression for any type of claims handling expense provision.
Loss reserve
Another name for claims reserve.
The expression is also often used in association with the reserve deposited by a reinsurer with the cedant to cover in part outstanding claims. Terms would indicate which party receives the investment income.
Minimum Solvency Margin
The Short Term Insurance Act, 1998, sets a statutory minimum level that all companies must adhere to. This minimum level is called the Minimum Solvency Margin.
Outstanding claims reserve
The reserve set up in respect of the liability for all outstanding claims, whether reported or not, including reserves for future payments on claims that are currently regarded as settled but may be reopened.
Period of unexpired risk
For a policy in force on an accounting date, the period from the accounting date to the expiry date.
Rating (verb)
The process of arriving at a suitable premium for an insurance risk. The term is sometimes synonymous with underwriting, though rating is strictly just one part of the underwriting process.
Recoveries
Amounts received by insurers to offset directly part of the cost of a claim. Recoveries may be made from several different sources, for example, reinsurers, other insurers, salvage and liable third parties.
Reinsurance
The insurance of insurers.
Reinsurer
An insurer providing reinsurance cover. Some reinsurers do not write any direct or primary insurance business.
Re-opened claim
A claim formerly deemed settled, but subsequently re-opened because further payments may be required.
Solvency margin
Another term for free reserves
Solvency ratio
The free reserves divided by the net (of reinsurance) written premiums.
Technical reserves
The accounting entries in the balance sheet that represents the insurer’s liabilities from the business that has been written.
Unearned premium reserve
The amount set aside from premiums written before the accounting date to cover risks incurred after that date.
Unearned premiums
The portion of premiums written in an accounting period that is deemed to relate to cover in one or more subsequent accounting periods. It can be calculated in at least two ways:
- Net of deferred acquisition cost (DAC); that is by deducting acquisition expenses before proportioning the written premium.
- Gross of DAC; that is, proportioning the full written premium without any deduction for DAC.
First approach is consistent with going concern basis, whilst the second is consistent with a break-up basis. However, the second approach can also be used for a going concern basis by including DAC as an asset in the balance sheet.
Unexpired risks reserve
This term is often used in two ways:
- The reserve required to cover the claims and expenses that are expected to emerge from an unexpired period of cover.
- The reseve required to cover the excess of the above over the UPR. This is sometimes known as the additional reserve for unexpired risk. (AURR)
Written premium
The amount of premium, either gross or net of reinsurance, for which cover commenced in an accounting period.
