Chapter 7 Flashcards
A balance sheet:
Summarizes what a company owns (assets) and what is owes (liabilities)
What is the balance sheet equation?
Total Assets = Total liabilities + Owner’s equity
The primary assets for an insurance company are:
Financial assets
A loss reserve is an estimated amount for:
- Claims reported and adjusted but not yet paid
- Claims reported and filed, but not yet adjusted
- Claims incurred but not yet reported to the company
Case reserves are:
loss reserves that are established for each individual claim
The loss ratio method establishes:
Aggregate loss reserves for a specific coverage line
What formula aids in helping determine the loss reserve?
Expected loss ratio
Policyholders’ surplus is the difference between:
An insurance company’s assets and liabilities
The stronger a company’s surplus position, the ___________________
greater is the security for its policyholders
How do you calculate policyholder’s surplus?
Assets – Liabilities = Surplus
The income and expense statement:
summarizes revenues and expenses paid over a specified period of time
The two principal sources of revenue for insurance companies are:
Premiums
Investment income
Earned premiums are those premiums
for which the service for which the premiums were paid (insurance protection) has been rendered
Expenses include:
- The cost of adjusting claims
- Paying the insured losses that occurred
Commissions to agents
-Premium taxes - General insurance expenses
The loss ratio is the ratio of :
Incurred losses and loss adjustment expenses to premiums earned
