Chapter 17 and 18 Glossary

Question 1

Cape cod method

Answer 1

A reserving method, similar to the Bornhuetter Ferguson method, where, instead of an a priori loss ratio, it uses weights proportional to a measure of exposure and inversely proportional to claims development.

Question 2

Capacity

Answer 2

The amount of premium income that an insurer is permitted to write or the maximum exposure that could be accepted (possibly based on capital limitations). It could refer to an insurance company, a Lloyd’s Name, a Lloyd’s syndicate or a whole market.

Question 3

Credibility

Answer 3

A statistical measure of the weight to be given to a statistic.

Question 4

Office premium

Answer 4

This is the total premium charged for the period of cover. This premium will contain the risk premium, commission, an allowance to cover all other types of expenses, an allowance for any premium tax and a profit loading.

Question 5

Product costing

Answer 5

Product costing is the calculation of the theoretical office premium to be charged for a particular class of business.

Question 6

Product pricing

Answer 6

Product pricing is the determination of the actual office premium. This will take account of current market conditions.

Question 7

Rating basis

Answer 7

The collection of assumptions used to associate the risk premium with the characteristics of the risk being insured.