Chapter 7: Underwriting Flashcards
Define ‘subscription market’
More than one insurer participates on a single risk
Why may insurers take less than 100% of a rsik?
Capacity, appetite, aggregation, broker influence, and the insured’s influence
Define ‘capacity’
The maximum amount of business an insurer can write in one year
Define ‘appetite for risk’
what an insurer wants to write across their whole portfolio
Define ‘aggregation’
Collecting risks all at risk of suffering a loss in the same event
What are current operating costs for insurers working in the London market?
30-40%
Define ‘leader/follower’
the underwriter who is first on the risk, and the underwriter who followss
Why do brokers focus on insurance company ratings so much?
Because if they recommend an insurer who goes under and can’t pay a future claim, they can face a negligence claim from their client
What four outcomes do regulators focus on when thinking about consumer duty?
the products and services being provided, price and value of the products, consumer understanding, and consumer support
What is exposure modelling?
/it looks at the way in which different risks that an insurer writes combine to concentrate risk in one area
Define ‘proabable maximum loss’
Realistic likely maximum an insurer has to pay out
What are realistic disaster scenarios?
a list of scenarios lloyds gives insurers to work out the financial impaxt of certain events occuring. Syndicates also need to identify and report on two scenarios of their own choice
Define ‘premium calculation’
Calculating the premium charged- this is made up of the premium base, and the premium rate
What other costs should be considered when pricing premium?
Operational costs. reinsurance costs, profit margin, contribution to claims reserves, and taxes
Define ‘reserving’
making sure there are sufficient funds available and allocated for the payment of any claims that arise at any time in the future
Define ‘short tail business’
Claims generally reported in the policy year or soon afterwards
Define ‘long-tail business’
Claims generally reported long after the policy year
Define ‘incurred but not reported’
Losses which have happened, but because they are long tail we don’t know they have ahppened yet. Insurers deal with these by uplifting their reserves
Define ‘situs/trust funds’
Physical funds or reserves in a country where LLoyds has been permitted to write risks
Define ‘reinsurance to close/ open years management’
when this years open claims are reinsured into next year, thus allowing this year to close
