Chapter 12 Glossary Flashcards
Cancellation
A mid-term cessation of a policy that may involve a partial return of premium
Claims run-off analysis
A tabulation showing the speed of reporting or settlement for cohorts of claims. Also called a delay table or, since it is usually triangular in form, a run-off triangle. The analysis may be in terms of claim numbers or claim amounts. It is often presented as an intermediate step in a chain ladder projection
Commutation
The process of prematurely terminating a reinsurance contract by agreeing an amount to settle all current and future claims
Commutation account
A register of the inflows and outflows to the treaty after the commutation has taken place.
Commutation clause
A clause in an insurance or reinsurance contract that allows the contract to be commuted under certain conditions. The clause works in conjunction with commutation accounts, which are used to calculate the relevant numbers
Delay table
See claims run-off analysis
Endorsement
Some change to the policy wording, usually following a change in the risk covered, that takes effect during the original period of insurance and is usually, but not necessarily, accompanied by an alteration in the original premium
Functional costing
A process used within an expense analysis to split the expenses of each line department between the different classes of business covered by that department.
The process usually relies upon fixing relative unit costs for each of the processes carried out by the department and counting the number of times that each of the processes is carried out over the period in question.
On level premium
In order for historical premium to be useful in projecting future premium, it must first be brought to current rate level. The policies underlying the experience period may have been written using rates that are no longer in effect. Adjustments need to be made to the historical premium for rate increases that occurred during or after the historical experience period or the projected premium will be understated. This is referred to as adjusting the premium “to current rate level” or putting the premium “on-level”.
Partial payment
Partial claim settlement paid on account, before a claim is finalised or closed
OR
Any claim for less than the full sum insured
Persistency
A measure of the probability that a policy will remain in force at renewal, rather than lapse.
Profit persistency
A term used for estimating the economic value of contracts using net present value techniques; that is, proposed premium rates are tested by projecting possible levels of future business, claims, expenses, investment experience and profit. The process may be extended to include all business and so form a model office akin to those in life companies.
