IF3.9 Rating Factors Flashcards
What are the 3 different levels of the information pyramid?
- Board level reporting
- Reporting to underwriting managers
- Operational data
Board Level reporting: Information Pyramid
directors are concerned with group performance/profitability, the control of negative risks and broad strategy implementation.
underwriting managers: Information Pyramid
responsible for different divisions within the business so require information that is specific to their area of responsibility.
Operational Level: Information Pyramid
Current issues will surrond the implementation on a day-to-day basis of the underwriting practises and procedures established by the management team. So, data will focus on customer service levels, accuracy of claims handling and settlement, documentation and credit control.
Issues concerned at the board level reporting level
- growth of the business
- Loss ratios
- underwriting margin/profit
- business mix
- exposure accumulations (is there chance for loss by writing too much in a certain area?)
- competitive positioning
- return on capital
- solvency (relationship between capital and exposure to risk)
issues concerned at the reporting to underwriting managers level
- growth by product
- retention rates
- new business flow analysis
- lapse flow analysis (lost business)
- loss ratios
- claims trends
- underlying claims
- large losses
- weather related losses
- reserve consistency
- rate changes and increase in end price to customer
- commission rate
- expense ratios
- exposure accumulations
- market share and competitor activity
Issues concerned at the operational data level
- loss ratio claims statistics
- new business
- retention
- rate increases
- credit control
- compliance with contract certainty standards
What is the benefit of analysing claims information
provides the underwriters with the information needed to ensure that predictions can be made about the future loss pattern and in turn the premium needed to cover the anticipated future claims
What will underwriters consider when analysing claims data?
- look at each year chronologically (is the no. claims increasing/decreasing, is the avg cost of claims increasing or decreasing)
- what are the causes of claims
- are there any large claims that are distorting the pattern
- are individual claims reserves accurate given the nature of the claim
- what is the position of the underlying claim
- how are the claims recorded
Risk is assessed in terms of…
frequency and severity
Examples of high frequency low severity claims
mobile phone thefts or motor windscreen claims
examples of low frequency and high severity claims
Marine accidents (oil spills etc)
reinsurance is taken out when…
- there are specific large losses
- an accumulation of exposures which create a large loss for the insurer in a single event
- the effects of an accumulation of events over a specific period
Claims loss ratio
the ratio of claims to premiums
claims loss ratio = claims incurred / premium x100
If the claims loss ratio is greater than 100% then…
the underwriter hasn’t made a sound decision
earned Premium
The amount of premium that the insurer has earned in the cover period. i.e. if they’re only half way through cover they’ve only earned half of it.
Earned Loss Ratio (ELR)
comparing the claims loss ratio with the premium earned.
Adjusted to reflect reinsurance and Incurred but not reported (IBNR) claims
Emerging risks
- toxic mould
- electro-magnetic forces
- stress
- passive smoking
- environmental/climate change
- NHS reform
- asbestos (developments in legislation)
uses of a policy year
addressing the performance of individual policies
What is a policy year
the 12 month period for insurance inception
Uses of the underwriting year
at account level: individual policy data is grouped into underwriting years based on the year in which the policy incepts or renews.
Uses of the calender year
monitoring claims and premiums from individual policies.
premiums are allocated according to that portion of the policy premium that is earned during the relevant calendar year.
Difference between the accounting year and the calendar year
calendar jan->dec
accounting apr-> march
Management Information (MI)
information that helps people make decisions about the company e.g. planning and strategies.
Gross
total income
Net
total income - costs (not inc. tax)
underwriting margin
how much money is being made
business mix
- cover provided for different classes
- distribution channels
- geographic locations selling in
(board level will be interested in this)
Exposure Acculmulations
Is the underwriter exposing themselves to too much loss by placing too much business in one particular area
(board level will be interested in this)
return on capital
what are the profits made from investments, in relation to shareholders (%)
(board level will be interested in this)
How frequently does board level reporting occur
usually monthly
solvency
possession of assets in excess of liabilities
Board Level vs Management Level
growth of business vs growth from specific products
reverse consistency
is the methodology for reserving consistent between similar cases
indexation
option to increase cover at renewal to account for inflation
Importance of claims information
- analyse the amount, cause and type of claims
- forecast future claims
- set premiums accurately
Personal Injury Discount Rates
-0.25%
An adjustment on a large lump sum based on the interests they could reasonably expect to achieve by investing the lump sum.
Risk accumulation examples
- fire spreading between premises
- insuring a number of people in the same premises
- insuring both the tenant and the landlord
- storm and flood effecting a wide area
Claims Loss ratio =
claims incurred / premium x100
Why is earned loss ratio important
To consider whether or not premiums are appropriate
Incurred but not reported claims (IBNR) examples
latent claims, where the effects of a loss take a while to become apparent.
Outstanding Loss ratio
loss ratio which includes claims that have been reported to the insurers but not settled.
Claims are compared against whole premium, not premium earned.
When does the underwriting year run from
1st Jan -> 31st Dec (all policies)
What type of report would the underwriter use to analyse the losses they made in one year?
an underwriting year report
policy year use
addressing the performance of individual policies
Policy year
runs from inception to renewal, often also listed is the premiums & the claims.
Underwriting year
grouped by when the policy incepts, with the claim in the underwriting year that its respective policy was in irrespective of when the claim was actually made.
Calendar Year
the usual calendar year with claims when they were actually made.
Financial/ Accounting Year
The same as calendar year but with a different date range & some will be estimated.
