Chapter 8 Flashcards
What is claim Reserving
The process by which the company determines how much are set aside for claims
What is IBNR
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.
What is the IBNR calculation based on
The pattern of claims reported in prior years and up the balance sheet date
What is IBNER
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.
Are IBNER claims under reserved
Yes
What is the unexpired risk provision
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
A- What is an unearned premium reserve
The unearned premium. Six month left on a 12 K premium is 6K is unearned premium reserve
When are insurance premiums earned
On the last day of the accounting period
What are the four methodologies to arrive at the estimate of a total cost of claims
Projection of paid claims
Projection of incurred claims
Loss ratio method
Bornhuetter- Ferguson
What is projection of paid claims methodology
Based on own data and its paid claims only. PAID CLAIMS ONLY. RESERVES ARE NOT INCLUDED.
A- Are reserves included in projection of incurred claims
Yes
What are projections of incurred claims
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
What is the loss ratio method
Market data. When you’re new to market and do not have any data so it’s based on market market information
What is bornheutter- ferguson
A combination of a loss ratio method with either a paid loss or incurred loss development
What is claims run-off
The accuracy of the amount set aside for claims
what is an unexpired risk provision
The unearned premium reserve and also you have under charged for the risk
how are claims development tables used
Used to help to understand liabilty claims and how to set IBNR
does the projection of paid claims method include reserves
No
what is bornheutter- ferguson method (look at)
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
what factors do you take into account when considering claim reserves
Inflation and claim inflation rates Change in legislation Change the underwriting practice New latent exposures Claims payment patterns differing from historical experience
What are discounted claims
Claims reserve reduced by expected income likely to be made on reserve amount during the time it is predicted the claim will run
What happens if claim run-offs are consistently adverse
The PRA, rating agencies reinsurance and other stakeholders will start having concerns as to the accuracy of the insurance claim reserving
What claim resrves are put into an insurance account they are called
Liability
What happens when you over reserve
charge too much premium, you put it as liability and it’s not so you can’t afford things
what happens when you under reserve
can go bankrupt
What is the difference between IBNER and unexpired risk provision- Exam question usually
IBNER - used for when you don’t reserve for claims enough.
Unexpired risk provision- when you don’t charge enough
