Introduction to General Insurance

Question 1

Why do general insurance companies exist?

Answer 1

1. To meet a need from customers

2. To make money

Question 2

List the various actuarial roles within a general insurer

Answer 2

1. Strategic management of the business
2. Risk assessment and management
3. Determining a suitable investment strategy
4. Assessing RI requirements for the business
5. Expense allocation
6. Capital allocation
7. Assessing the effectiveness of marketing campaigns
8. Assisting with the early settlement of liabilities in the event of a wind-up

Question 3

List the main claim characteristics for GI business

Answer 3

1. Reporting delays
2. Settlement delays
3. Short and long tail claims

Question 4

What are the reserves for outstanding claims?

Answer 4

1. Outstanding reported
2. IBNR
3. IBNER
4. Re-opened
5. CHE

Question 5

How can claims be estimated?

Answer 5

1. Case estimates (not for IBNR as the claim is not reported yet)
2. Using statistical techniques to estimate the total outstanding payments for the portfolio (where there is sufficient data due to high volumes of claims, with similar amounts)

Question 6

What are the reserves for unexpired policies?

Answer 6

1. UPR
2. URR (normally < UPR)
3. AURR = min(0; URR - UPR)

Question 7

How is UPR calculated?

Answer 7

Proportion of risk unexpired*(premium - acquisition cost)

Question 8

What are the weaknesses of a proportional approach in estimating the UPR?

Answer 8

Risk may not be evenly spread over the coverage period and the expenses of setting up and servicing the policy may not be incurred evenly over the period of cover

Question 9

What is moral hazard?

Answer 9

The risk that a policyholder may act differentl because of being insured, i.e. the policyholder may become less risk averse