Chapter 8 Flashcards
(76 cards)
What is claims reserving in insurance?
The process of estimating the amount insurers need to set aside to cover future claims payments.
Why is claims reserving important for insurers?
It affects profitability, financial stability, and compliance with regulatory requirements.
What does IBNR stand for?
Incurred But Not Reported claims.
Why are IBNR claims important in reserving?
They represent claims that have occurred but have not yet been reported, impacting reserve calculations.
Name one key method used for claims reserving.
The Chain-Ladder Method (Projection of Paid/Incurred Claims).
What does the Loss Ratio Method use to estimate reserves?
The ratio of losses to earned premiums.
How does the Bornhuetter-Ferguson method work?
It combines past claims data with expected future loss ratios.
What is the difference between case reserves and bulk reserves?
Case reserves are set for known claims, while bulk reserves account for unknown or IBNR claims.
What is the impact of inflation on claims reserves?
It increases future claim payments, requiring adjustments in reserve estimations.
What is the role of actuarial judgment in reserving?
Actuaries interpret data, adjust assumptions, and choose methods to estimate reserves accurately.
What is the purpose of claims development triangles?
To analyze how claims amounts change over time and improve reserving accuracy.
Why might an insurer under-reserve?
To make financial results look better in the short term, though it can lead to financial instability.
What happens if an insurer over-reserves?
It ties up excess capital, reducing profitability.
How does changes in claims handling affect reserves?
Faster or slower claim settlements can impact how reserves develop over time.
What is the regulatory requirement for claims reserves?
Regulators require insurers to maintain adequate reserves to protect policyholders and ensure solvency.
Which of the following best defines claims reserving?
a) Collecting premiums from policyholders
b) Estimating future claim payments insurers must set aside
c) Paying claims immediately after they are reported
d) Reducing insurance policy prices
b) Estimating future claim payments insurers must set aside
Why is claims reserving essential for insurers?
a) It increases their profit margins
b) It helps meet regulatory requirements and financial stability
c) It allows insurers to ignore claims data
d) It ensures policyholders pay higher premiums
b) It helps meet regulatory requirements and financial stability
What does IBNR stand for?
a) Incurred But Not Recorded
b) Insurance-Based Non-Reported
c) Incurred But Not Reported
d) Initial Balance Net Reserve
c) Incurred But Not Reported
Which method is commonly used to estimate claims reserves?
a) Chain-Ladder Method
b) Expense Ratio Analysis
c) Cash Flow Discounting
d) Market Value Approach
a) Chain-Ladder Method
What does the Bornhuetter-Ferguson method combine?
a) Historical claims data and expected loss ratios
b) Only paid claims data
c) Only premium earnings
d) Total incurred claims
a) Historical claims data and expected loss ratios
Which method uses the ratio of losses to earned premiums?
a) Chain-Ladder Method
b) Loss Ratio Method
c) Development Triangle Method
d) Case Reserve Method
b) Loss Ratio Method
What is the key assumption of the Chain-Ladder Method?
a) Future claims development follows past patterns
b) Inflation has no impact on claims
c) Claims payments are always constant
d) Premiums determine reserve amounts
a) Future claims development follows past patterns
Why do insurers use claims development triangles?
a) To track changes in claim amounts over time
b) To reduce the number of claims filed
c) To predict premium increases
d) To determine tax deductions
a) To track changes in claim amounts over time
Which of the following can cause an increase in claims reserves?
a) Faster claim settlements
b) Lower-than-expected claim payouts
c) Higher-than-expected claim costs
d) Decreasing inflation rates
c) Higher-than-expected claim costs
