Chapter 8

Question 1

What is claim Reserving

Answer 1

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

Question 2

What is IBNR

Answer 2

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.

Question 3

What is the IBNR calculation based on

Answer 3

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

Question 4

What is IBNER

Answer 4

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.

Question 5

Are IBNER claims under reserved

Answer 5

Yes

Question 6

What is the unexpired risk provision

Answer 6

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

Question 7

A- What is an unearned premium reserve

Answer 7

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

Question 8

When are insurance premiums earned

Answer 8

On the last day of the accounting period

Question 9

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

Answer 9

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

Question 10

What is projection of paid claims methodology

Answer 10

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

Question 11

A- Are reserves included in projection of incurred claims

Answer 11

Yes

Question 12

What are projections of incurred claims

Answer 12

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

Question 13

What is the loss ratio method

Answer 13

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

Question 14

What is bornheutter- ferguson

Answer 14

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

Question 15

What is claims run-off

Answer 15

The accuracy of the amount set aside for claims

Question 16

what is an unexpired risk provision

Answer 16

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

Question 17

how are claims development tables used

Answer 17

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

Question 18

does the projection of paid claims method include reserves

Answer 18

No

Question 19

what is bornheutter- ferguson method (look at)

Answer 19

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

Question 20

what factors do you take into account when considering claim reserves

Answer 20

Inflation and claim inflation rates
Change in legislation
Change the underwriting practice
New latent exposures
Claims payment patterns differing from historical experience

Question 21

What are discounted claims

Answer 21

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

Question 22

What happens if claim run-offs are consistently adverse

Answer 22

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

Question 23

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

Answer 23

Liability

Question 24

What happens when you over reserve

Answer 24

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

Question 25

what happens when you under reserve

Answer 25

can go bankrupt

Question 26

What is the difference between IBNER and unexpired risk provision- Exam question usually

Answer 26

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

Unexpired risk provision- when you don’t charge enough