Chapter 8 - General Insurance Products

Question 1

Overview & Key features

Answer 1

Indemnity in most cases - to restore to same financial position after a loss as before the loss

Key features include:
- Short term in nature
- Uncertain claim timing and amount
- Multiple claims
- Reporting and settlement delays
- Renewals usually subsidise new business

Question 2

Main Types

Answer 2

1. Liability Classes
   - Third party
   - public
   - employer
2. Property Damage
   - motor
   - buildings
   - Moveable contents
   - marine
   - aircraft
3. Financial Loss
   - pecuniary loss
   - fidelity guarantee
   - business interruption
4. Fixed Benefit
   - personal accident
   - health (medical expenses)
   - unemployment

Question 3

Profit Calculation

Answer 3

Premiums
- Reinsurance Premiums
- Claims + Reinsurance Recoveries
- Expenses and Commission
- Increase in Reserves
- Increase in Cost of Capital
+ Investment income and Gains
- Tax

GI Account tend to use a claims incurred figure which = Claims Paid + Increase in reserves

= Profit

Question 4

Reserving for General Insurance

Answer 4

Reserves include:
- IBNR ( Incurred but not reported )
- OCR ( Outstanding claims reserve for claims known but not yet settled )
- Unexpired risk reserve ( Claims that have not yet happened in a future period of cover )
- Catastrophe reserve
- Claims handling expense reserve

Question 5

Investment Strategy

Answer 5

• Short term liabilities so short term liquid assets
• Assets denominated in domestic currency ( and foreign if marine and aviation type business written )
• real assets for inflation linked liabilities

Question 6

Key Risks

Answer 6

• Claims frequency and severity
• Expense risks
• Accumulation risks ( one event causing multiple claims , eg. flood )
• Operational risks
• Credit risks
• Investment risks
• poor persistency ( high lapse , low renewals )
• new business too high/low leading to new business strain / not enough business to spread overheads

Question 7

Monitoring Experience

Answer 7

• Claims Numbers , amounts
• Expenses
• Lapses and Renewals
• New business volumes & Mix
• Reinsurance performance
• reserve levels
• Investment returns