CPCU 540 Ch. 11 Flashcards
The use of fixed cost funds (debt) to increase returns to shareholders
Financial leverage
The opportunity cost of funds provided by investors
Cost of capital
Risk that arises from factors that are unique to a particular investment
Unsystematic risk (specific risk)
A measure of the loss volatility of the types of insurance sold by an insurer
Underwriting risk
Amount of capital an insurer needs to support its operations, given the insurer’s risk characteristics
Risk-based capital (RBC)
A model act requiring and solvency self-assessment by insurers with a focus on ERM-related planning and processes
NAIC Risk Management and Own Risk and Solvency Assessment (ORSA)
The amount of capital required by an organization to ensure solvency at a given probability level, such as 99 percent, based on the fair value of its assets minus the fair value of its liabilities
Economic capital
The fair value of assets minus the fair value of liabilities
Market value surplus
The amount of compensation in excess of the market value needed to induce an investor to accept the risk
Market value margin
A method developed by the National Association of Insurance Commissioners (NAIC) that establishes a minimum amount of capital that an insurer needs to support its overall ongoing business operations based on the risk-based capital formula
Risk-based capital (RBC)
An approach to managing all of an organization’s key business risks and opportunities with the intent of maximizing shareholder value. Also known as enterprise-wide risk management
Enterprise risk management
