Chapter 7 - Underwriting Flashcards
Why might an insurer not take 100% of a risk?
- capacity
- appetite
- aggregation
- broker’s influence
- insured’s influence
How are insurers rated?
- financial position
- management and operation
- compared to peers
Why are brokers bothered about ratings?
Exposed to negligence claims if insurer can not pay claim
What is important about choice of leader?
- set good terms and conditions for the client
- credible in follow market if they do not take 100% of the risk
What is probable maximum loss?
Realistic maximum claim
What are the realisitic disaster scenarios?
Scenarios set out by Lloyds syndicates must analyse in loss modelling, plus two scenarios of syndicates choice
How are premiums constructed?
- premium rate: hazards that are being faced with a particular risk
- premium base: a measure of exposure
What are the exposure measures for EL, PL, and PI?
Payroll, turnover, fee income
What are other components of premiums?
- operational costs
- reinsurance costs
- profit margin
- contribution to claim reserves
- taxes
What is reserving?
Keeping funds to pay claims
What is the current discount rate applied to outstanding claims?
-0.25%
Why is over-reserving bad?
High reserves = high liability so therefore must tie up assets to offset this in the SCR
Why is under-reserving bad?
If claim is ready to be paid and do not have sufficient amounts, has to be paid from elsewhere. This gives a false picture of profitablility
What is IBNR?
Making a provision for claims where the claims are not yet known
How must money for claims be held for some overseas regulators?
In trust funds based in the country where the risk is written
