Insurance Terms Flashcards
Exposure
basic unit of risk that underlies the insurance premium
Written exposure
total exposures arising from policies issued during a specified period of time
Earned exposure
(as of a certain point in time) the portion of the written exposure for which coverage has already been provided
Unearned exposure
(as of that point in time) the portion of the written exposure for which coverage has not yet been provided
In-force exposures
number of insured units that are exposed to loss at a given point in time
Written premium
total premium associate with policies that were issued during a specified period
In-force premium
full-term premium for policies that are in effect at a given point in time
Estimated Ultimate Losses
Paid losses + case reserve + IBNR Reserve + IBNER Reserve
IBNER
aka development on known claims
ALAE
LAE that are directly attributable to a specific claim
Example of ALAE
Fees associated with outside legal counsel hired to defend a claim
Example of ULAE
salaries of claims department personnel
Characteristics of LAE
claim-related expenses
Underwriting expenses
aka. operational and administrative expenses. Non claim-related expenses in the acquisition and servicing of policies
4 Categories of underwriting expenses
- Commissions and brokerage
- Other acquisition
- General
- Taxes, licenses, and fees
Commission and brokerage expenses
Paid as a percentage of premium written
Other acquisition expenses
expenses other than commissions and brokerage expenses paid to acquire business
Example of “other acquisition”
Costs associated with media advertisements
General expenses
Remaining expenses associated with the insurance operations and any other miscellaneous costs
Example of “General expenses”
costs associated with the general upkeep of the home office
Taxes, licenses, and fees
include all taxes and miscellaneous fees paid by the insurer (excluding federal income taxes)
Underwriting profit
aka. operating income, the sum of the profits generated from the individual policies
Two main sources of profit for insurance companies
- Underwriting profit
2. Investment income
Investment income
income generated by investing funds held by the insurance company
