Chapter 4 Flashcards
(29 cards)
How is earned premium calculated?
Unearned premium reserve at the beginning of the period
- unearned premium reserve at the end of the period
= premiums earned for the period
What are some terms used when discussing written premium?
Direct premium written- premiums sales to a policyholder
Assumed premiums written- premium sales to a reinsurer
Gross premiums written- direct +assumed
Ceded premium written- premiums transferred to a reinsurer
Net premiums written- gross premiums less ceded premiums written
What is the difference between written and earned premium?
Written premium
-the total amount customers are required to pay for insurance coverage on policies
- factor in the amount of premium charged
-principle source of an insurance company’s revenue
Earned premium
-earnings for providing insurance against various risks during the year
What are the three claim payments?
Direct- a payment to settle an insured loss to a claimant
Assumed- a payment to another company to settle the company’s share of an insured loss
Ceded- a request for payment from a reinsurer to recover its share of an insured loss
What are the internal claim expenses
Direct- usually only direct internal claim expenses for an insurance company
Unallocated- the expense is not directly assigned to a specific and individual claim
Including company’s expenses to reserves, manage, and settle a claim
What are the external claim expenses?
Also referred to as allocated loss adjustment expenses
Allocated means that the expense is assigned to a specific claim
Direct or assumed- the company’s expenses paid to a third parties that were incurred to help reserve, manage, or settle a claim
Ceded- reinsurance contracts generally provide for the company to recover gross external claim expenses from a reinsurer
What are some claim reserves?
Case reserve- a reserve based on a claim that have been reported but not yet paid
Incurred but not reported (IBNR) reserve- a reserve for claims that the company estimates will be reported
Claim expense reserve- generally estimated by the actuaries and is intended to represent the internal cost to reserve, manage, and settle all claims the company has or may have related to premiums it has already
Explain ultimate claims incurred or expected claims incurred
To indicate the actuarially estimated to net claims incurred for an accident year and usually presented for a specific portfolio or product line
Explain large losses
Claims reported by a company in which the claim has an incurred amount over the company’s threshold
Explain catastrophic losses or weather losses
An aggregate multiple claims that are all part of the same “claim event”
Explain calendar year
Claims information that measures any claims activity reported in the calendar reporting period regardless of the loss date of the claim or reserves
Explain accident year
Claims information that relates to the claims incurred within a year, regardless of when the claim or reserve was reported
Explain current accident year
Related to claims information for net claims incurred within the current accident year and the current annual reporting period
Explain prior year development
Relates to claims information for all prior accident years that have been reported in the current calendar year
Explain commissions
-Independent brokers and agents earn income from insurance companies by way of commission fees paid for the work of marketing insurance policies
-Direct writers tend to spend a higher percentage on revenue on expenses but lower proportion on commissions compared to companies that use independent brokers
-commission payment schedules are outlined in the broker or agency agreement and are typically expressed as a percentage of the premiums collected per policy
Explain regular commission and contingency commission
Regular commission- rates paid by insurers are generally set by market conditions and are usually consistent among insurers
Contingency commission- paid in addition to regular commission and can vary widely between insurer
What are the different type of investments?
Security- certificate representing either indebtedness (in the case of a bond) or ownership (in common or preferred stocks)
Bond- written promise by a borrower to pay back, on a stated date, money loaded and in the meantime, pay interest to the holder (lender)
Common share- a security that represents part ownership of a company
Preferred share- is also a security that represents part ownership of company
Dividend- a payment made to shareholders from the profits earned by a company
When selecting investments what two aspects are looked at?
Achieving a balanced portfolio and the appropriate level of liquidity
Balanced portfolio- safety is achieved by diversifying investments over a number of different securities and types of securities
Liquidity- refers to how easily an investment can be converted to cash
Understanding the financial cycle specific to insurance companies supports what?
Interpreting a company’s results
Preparing usable comparisons between companies
Projecting and planning future estimates
Understanding the relationships between financial measures
Contributing to decision making discussions that lead actions to measurable financial results
What are the different composition of financial statements
Balance sheets-shows accumulated wealth and outstanding obligations (simple accounting equation is assets=liabilities+shareholders equity)
Statements of income/Statement of of profit or loss- net income over a period of time(net income=revenue-expenses)
Statement of changes in shareholders equity- links the balancing sheet at the beginning and end of a reporting period to the income statement
Statement of cash flow- shows the sources and use of cash
What is premium receivables?
Net premium due from broker/policyholder less commissions
Net acccounts receivable position with third party
What is reinsurance assets?
Net reserves position due from reinsurance, ceded amounts from gross claims liabilities and gross unearned premiums
What is claims liabilities?
All gross claim reserves due to the claimants and to settle claims based on all reserve estimates
What is unearned premium?
Portion of gross written premium (sales) that is refundable if policy is cancelled
