Glossary

Question 1

ALAE

Answer 1

allocated loss adjustment expenses

Question 2

ACPC

Answer 2

Average Cost per Claim method - a method of reserving which relies on the average cost of claims paid and incurred.

Question 3

Basic Chain Ladder Model

Answer 3

A statistical method of estimating outstanding claims, whereby the weighted average of past claim development is projected into the future. If appropriate the method can be applied to past claims data that have been explicitly adjusted for past inflation

Question 4

Berquist-Sherman model

Answer 4

A reserving method whereby the incurred triangle is adjusted for changes in case reserve adequacy and/or the paid triangle is adjusted for changes in claims settlement rates.

Question 5

BF model

Answer 5

A reserving method that uses weigths based on a priori loss ratio and claims development

Question 6

Bootstrap model

Answer 6

This reserving method relies on random sampling with replacement and therefore produces a range of outcomes

Question 7

Cash back bonus

Answer 7

A benefit provided for in a policy document that entitles a policyholder to a predetermined benefit on expiry of a specified period and under specified circumstances

Question 8

Cape Cod model

Answer 8

A reserving method similar to BF, instead of priori loss ratio it uses weights proportional to a measure of exposure and inversely proportional to claims development

Question 9

Claims handling expenses

Answer 9

Expenses assosciated with the settling and administration of claims

Question 10

Closed portfolio

Answer 10

When no new business may be added to a portfolio

Question 11

Credible data

Answer 11

When data is worthy of confidence due to it’s applicability, validity or volume

Question 12

Diversification benefit

Answer 12

When combining classes, it is unlikely the worst case will occur for all classes at the same time, hence a benefit is realised

Question 13

Expected loss ratio model

Answer 13

A reserving method whereby the ultimate claims are derived from the expected loss ratio assumption and earned premium

Question 14

Inflation adjusted chain ladder method

Answer 14

A reserving method which is based on the basic chain ladder model but incremental payments or case estimates in each calendar period are adjusted by past inflation to current monetary terms

Question 15

What is materiality criteria?

Answer 15

The methods
procedures
or rules used to assess materiality

Question 16

Recoveries

Answer 16

The expected amount to be recovered with respect to particular claims.
A distinction can be made between reinsurance recoveries and non-reinsurance recoveries e.g. salvage and subrogation

Question 17

Reporting date

Answer 17

A point in time at which the insurer reports on it’s financial position

Question 18

Risk

Answer 18

The uncertainty of future outcomes in relation to that expected. In particular, increased uncertainty is interpreted to imply more risk

Question 19

Run-Off

Answer 19

When an insurer will write no new business but continue to operate with underwritten insurance contratcs until the end of the existing policies term

Question 20

Run-Off expenses

Answer 20

All expected expenses likely to be incurred in running the portfolio

Question 21

Sensitivity analysis

Answer 21

Assessing the change in results when varying the inputs to a model or calculation

Question 22

Technical provisions

Answer 22

The amount set aside to cover all liabilities arisign out of contracts with past and future expsoure/expired and unexpired risk

Question 23

Unexpired risks

Answer 23

Risks for which the coverage extends beyond the valuation period

Question 24

ULAE

Answer 24

Expenses incurred that are not directly attributable to an individual claim, these include claim department costs and usually some overheads

Question 25

Valuation model

Answer 25

All the methods, procedures and calculations used in the actuarial valuation

Question 26

Valuation unit

Answer 26

A line of business, group of a lines of business or a part of one line of business which is treated as a single entity for the purposes of a valuation

Question 27

Wind-up

Answer 27

When an insurer ceasing all business activities and intends on returning it’s license