Glossary Flashcards
24ths method
A method of estimating unearned premium reserve, based on the assumption that annual policies are written evenly over each month and risk is spread evenly over the year. For example, policies written in the first month of the year are assumed to contribute 1/24th of the month’s written premium to the unearned premium reserve at the end of the year.
365ths method
A method of estimating unearned premium reserve, based on the assumption that the risk is spread evenly over the 365 days of a year of cover. For example, where a policy was written 100 days ago, 265/365ths of the premium is taken as being unearned.
Accident year
An accident year grouping of claims means that all the claims relating to loss events that occurred in a 12-month period (usually a calendar year) are grouped together, irrespective of when they are actually reported or paid and irrespective of the year in which the period of cover commenced.
Accumulation of risk
An accumulation of risk occurs when a single event can give rise to claims under several different policies. Such an accumulation might occur by location (property insurance) or occupation (employers’ liability insurance), for example
Acquisition costs
Costs arising from the writing of insurance contracts, such as commission
Act of God
An event, such as a storm or flood, that is unexpected and outside human control. From the perspective of insurers, it is a cause of insurance losses
Additional reserve (provision) for unexpired risk
The reserve held in excess of the unearned premium reserve, which allows for any expectation that the unearned premium reserve will be insufficient to cover the cost of claims and expenses incurred during the period of unexpired risk.
Adjustment premium
The adjustment premium is an additional premium payable at the end of a period of cover. This may result from the use of retrospective experience rating or from a situation where the exposure cannot be adequately determined at the start of the period of cover.
Adverse development cover
A reinsurance arrangement whereby a reinsurer agrees, in return for a premium, to cover the ultimate settled amount of a specified block of business above a certain pre-agreed amount.
Agents’ balances
Moneys (typically premiums) that belong to an insurer but are held by an agent
Aggregate excess of loss reinsurance
A form of excess of loss reinsurance that covers the aggregate of losses, above an excess point and subject to an upper limit, sustained from a single event or from a defined peril (or perils) over a defined period, usually one year
All risks
Cover that is not restricted to specific perils such as fire, storm, flood and so on. The cover is for loss, destruction or damage by any peril not specifically excluded. The exclusions will often be inevitabilities like wear and tear. The term is sometimes loosely used to describe a policy that covers a number of specified risks, though not all.
Allocated loss adjustment expenses (ALAE)
Claims handling expenses
Annual basis of accounting
Annual accounting is one of two statutory bases of accounting, the other being fund accounting. Annual accounting is based on the cover provided during the accounting period, regardless of when the contracts of insurance start and end. Fund accounting is based on the contracts starting during the accounting period, regardless of the periods of cover provided.
Anti-selection
The preference of some insurance applicants for policies whose underwriting requirements are less stringent than others.
Anti-selection occurs when a more profitable business is attracted away from an insurer by a competitor who has found a way of identifying the more profitable segment and offers more attractive terms.
Asset liability modelling
A form of actuarial projection which analyses future flows of investment income against liability outgo
Atafs - Age to age factors
Used by the CAS to refer to link ratios or development factors
Atufs - Age to ultimate factors
Used by the CAS in triangulation reserving methods to refer to the grossing-up factor to get from an intermediate period of development to ultimate
Average
- In non-marine insurance, the term relates to the practice of reducing the amount of a claim in proportion to the extent of underinsurance.
- In marine insurance, the term is generally used to describe damage or loss.
Average cost per claim method
A method of reserving which relies on the average cost of claims paid or incurred.
Balance of a reinsurance treaty
The ratio of the total premiums receivable by a reinsurer under a surplus treaty to the reinsurer’s maximum liability for any one claim, based on estimated (or expected) maximum loss (EML).
Benchmark
A benchmark is any statistic derived from external sources; for example, loss ratio, expense-related measure, claim reporting or claim payment development pattern.
Binding authority
Contractual agreements setting out the scope of delegated authority, allowing cover holders to enter into contracts of insurance and to issue insurance documents on behalf of Lloyd’s managing agents.
Bonus hunger
The reluctance of policyholders under a no-claim discount (NCD) or bonus-malus system to notify claims or claim amounts when faced with a potential increase in premiums. Also known as hunger for bonus.