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M92 > Chapter 8 > Flashcards

Chapter 8 Flashcards

1
Q

What is claim Reserving

A

The process by which the company determines how much are set aside for claims

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2
Q

What is IBNR

A

Incurred but not reported- amount the actuaries put aside for claims which haven’t yet been notified.
Disease claims and delayed claims that come in down the line like asbestosis- will go bankrupt if you haven’t done it.

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3
Q

What is the IBNR calculation based on

A

The pattern of claims reported in prior years and up the balance sheet date

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4
Q

What is IBNER

A

Incurred but not enough reported- actuaries do modelling and realise have been under reserving on a claim so need to uplift by a certain percentage by a one off adjustment.

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5
Q

Are IBNER claims under reserved

A

Yes

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6
Q

What is the unexpired risk provision

A

Only used when actuaries think underwriters have been undercharging and therefore unearned premium isn’t enough. It is set up as a liability in accounts because the unearned premium reserve is not adequate to cover the cost of claims/ not charged for risk

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7
Q

A- What is an unearned premium reserve

A

The unearned premium. Six month left on a 12 K premium is 6K is unearned premium reserve

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8
Q

When are insurance premiums earned

A

On the last day of the accounting period

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9
Q

What are the four methodologies to arrive at the estimate of a total cost of claims

A

Projection of paid claims
Projection of incurred claims
Loss ratio method
Bornhuetter- Ferguson

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10
Q

What is projection of paid claims methodology

A

Based on own data and its paid claims only. PAID CLAIMS ONLY. RESERVES ARE NOT INCLUDED.

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11
Q

A- Are reserves included in projection of incurred claims

A

Yes

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12
Q

What are projections of incurred claims

A

Most popular choice for Actuaries. It is own data. INCLUDES CLAIM PAID AND CLAIM RESERVES. A more accurate estimate a total claims use as it uses more information

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13
Q

What is the loss ratio method

A

Market data. When you’re new to market and do not have any data so it’s based on market market information

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14
Q

What is bornheutter- ferguson

A

A combination of a loss ratio method with either a paid loss or incurred loss development

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15
Q

What is claims run-off

A

The accuracy of the amount set aside for claims

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16
Q

A- what is an unexpired risk provision

A

The unearned premium reserve and also you have under charged for the risk

17
Q

A- how are claims development tables used

A

Used to help to understand liabilty claims and how to set IBNR

18
Q

A- what are the four methods used for projecting claims

A
  1. Projection of paid claims
  2. Projection of incurred claims
  3. Loss ratio method
  4. Bornheutter- ferguson
19
Q

A- does the projection of paid claims method include reserves

A

No

20
Q

A- what is projection of incurred claims

A

Your date paid out reserve claims

21
Q

A- what is the loss ratio method

A

Basing predictions on market data not own data. When you’re new to a market it’s based on market information not your data

22
Q

A- what is bornheutter- ferguson method (look at)

A

A blend between market data and your own data. Look at your data and market data and slowly move to your data as time goes by

23
Q

A- what factors do you take into account when considering claim reserves

A

Inflation and claim inflation rates
Change in legislation
Change the underwriting practice
New latent exposures
Claims payment patterns differing from historical experience
Investment income rates are some insurers account using discounted claims

24
Q

a- What are discounted claims

A

Claims reserve reduced by expected income likely to be made on reserve amount during the time it is predicted the claim will run

25
Q

What happens if claim run-offs are consistently adverse

A

The PRA, rating agencies reinsurance and other stakeholders will start having concerns as to the accuracy of the insurance claim reserving 

26
Q

What claim resrves are put into an insurance account they are called

A

Liability

27
Q

What happens when you over reserve

A

charge too much premium, you put it as liability and it’s not so you can’t afford things

28
Q

what happens when you under reserve

A

can go bankrupt

29
Q

What is the difference between IBNER and unexpired risk provision

A

IBNER - used for when you don’t reserve for claims enough.

Unexpired risk provision- when you don’t charge enough

M92 (12 decks)

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