The Underwriting Function Flashcards
Policyholders’ surplus
Under statutory accounting principles (SAP), an insurer’s total admitted assets minus its total liabilities
Capacity
The amount of business an insurer is able to write, usually based on a comparison of the insurer’s written premiums to its policyholders’ surplus
Underwriting authority
The scope of decisions that an underwriter can make without receiving approval from someone at a higher level
Line underwriter
Underwriter who is primarily responsible for implementing the steps in the underwriting process
Staff underwriter
Underwriter who is usually located in the home office and who assists underwriting management with making and implementing underwriting policy
Manuscript policy
An insurance policy that is specifically drafted according to terms negotiated between a specific insured (or group of insureds) and an insurer
Underwriting policy (underwriting philosophy)
A guide to individual and aggregate policy selection that supports an insurer’s mission statement
Advisory organization
An independent organization that works with and on behalf of insurers that purchase or subscribe to its services
Prospective loss costs
Loss data that are modified by loss development, trending, and credibility processes, but without consideration for profit and expenses
Loss development
The increase or decrease of incurred losses over time
Trending
A statistical technique for analyzing environmental changes and projecting such changes into the future
Treaty reinsurance
A reinsurance agreement that covers an entire class or portfolio of loss exposures and provides that the primary insurers’s individual loss exposures that fall within the treaty are automatically reinsured
Underwriting audit
A review of underwriting files to ensure that individual underwriters are adhering to underwriting guidelines
National Association of Insurance Commissioners (NAIC)
An association of insurance commissioners from the fifty U.S. states, the District of Columbia, and the five U.S. territories and possessions, whose purpose is to coordinate insurance regulation activities among the various state insurance departments
Premium-to-surplus ratio or capacity ratio
A capacity ratio that indicates an insurer’s financial strength by relating net written premiums to policyholders’ surplus
Statutory accounting principles (SAP)
The accounting principles and practices that are prescribed or permitted by an insurer’s domiciliary state and that insurers must follow
Return on equity (ROE)
A profitability ratio expressed as a percentage by dividing a company’s net income by its net worth (book value). Depending on the context, net worth is sometimes called shareholders’ equity, owners’ equity, or policyholders’ surplus
Market conduct examination
An analysis of an insurer’s practices in four operational areas: sales and advertising, underwriting, ratemaking, and claim handling
Predictive modeling
A process in which historical data based on behaviors and events are blended with multiple variables and used to construct models of anticipated future outcomes
Underwriter
An insurer employee who evaluates applicants for insurance, selects those that are acceptable to the insurer, prices coverage, or a substantive policy midterm or renewal change
Underwriting submission
Underwriting information for an initial application, or a substantive policy midterm or renewal change
Expert systems, or knowledge-based systems
Computer software programs that supplement the underwriting decision-making process. These systems ask for the information necessary to make an underwriting decision, ensuring that no information is overlooked
Information efficiency
The balance that underwriters must maintain between the hazards presented by the accountant and the information needed to underwrite it
Application
A legal document that provides information obtained directly from an applicant requesting insurance and that an insurer can use for underwriting and claim handling purposes
