Section 5 - Glossary & other stuff

Question 1

Describe the difference between claim liabilities and premium liabilities.

Answer 1

Claim liabilities relate to claims that occurred on or before the
accounting/valuation date, regardless of whether it has been reported or not.

Premium liabilities relate to claims that occurred after the accounting/valuation
date and are associated with the unexpired portion of policies effective on or
before the accounting/valuation date

Question 2

Describe the purpose of a residual market mechanism

Answer 2

A residual market mechanism provides a means of obtaining coverage for
individuals or organizations who are unable to secure insurance protection in the
open market

Question 3

Describe one reason why an indicated rate change using a pure premium approach may not result in the same as Claim ratio

Answer 3

The premium on-level factors are an approximation used to restate historical earned premiums as if they were at the current rate level for the forecast period.

Question 4

Identify why a separate trending procedure for fixed expenses may not be required when analyzed on a per-exposure basis.

Answer 4

When the forces affecting changes in expenses (i.e., the expense trend) are similar to those driving changes in premiums, a separate trend adjustment for fixed expenses may not be necessary.