CPCU 540 Ch. 5 Flashcards
The amount of business an insurer is able to write, usually based on a comparison of the insurer’s written premium to its policyholders’ surplus
Capacity
The ease with which an asset can be converted to cash with little or no loss of value
Liquidity
The total premium on all policies written (put into effect) during a particular period
Written premiums
An insurer liability representing the amount of premiums received from policyholders that are not yet earned
Unearned premium reserve
The portion of written premiums that corresponds to coverage that has already been provided
Earned premiums
The process of comparing results to industry standards or best practives
Benchmarking
A capacity ratio that indicates an insurer’s financial strength by relating net written premiums to policyholders’ surplus
Premium-to-surplus ratio, or capacity ratio
A financial ratio that provides measure of the ability to an insurer’s surplus to absorb increases in reserves
Reserves-to-surplus ratio
An amount paid by reinsurer to the primary insurer to cover part or all of the primary insurer’s policy acquisition expenses
Ceding commission
An indication of the extent to which policyholders’ surplus can support a given level of reserves
Ceding commission
An indication of the extent to which policyholders’ surplus can support a given level of reserves
Insurance leverage
A ratio that measures the extent to which an insurer can meet its obligations they come due and is the sum of cash plus invested assets (market value) divided by unearned premium reserve plus loss and loss adjustment expenses
Liquidity ratio
A profitability ratio that indicates whether an insurer has made an underwriting loss or gain
Combined ratio
A ratio that measures losses and loss adjustment expenses against earned premiums and that reflects the percentage of premiums being consumed by losses
Loss ratio
An insurer’s incurred underwriting expenses for a given period divided by its written premiums for the same period
Expense ratio
