Study 3 Flashcards
(30 cards)
What is paid-up capital?
The money shareholders have fully paid for their shares in a company.
Example: If $1 million in shares are fully paid, the paid-up capital is $1 million.
What are outstanding loss reserves?
Funds set aside to pay claims that have happened but aren’t paid yet.
What are the two sources of profit for stock insurance companies?
1) Underwriting gain
2) Investment income.
What is underwriting gain?
When an insurance company makes more from premiums than it pays in claims and expenses.
Example: Collect $1M in premiums (-) but only pay $800K in claims → $200K gain.
What is investment income?
Money earned by investing premiums.
Example: Premiums are invested in stocks or bonds for returns.
What makes up insurance company income?
Premiums + Investment income.
What is a mutual insurance company?
Company owned by policyholders who share profits and losses.
Example: Profit = discount; Loss = possible extra charge.
What is a captive insurance company?
A business creates its own insurance company to cover its own risks.
Example: An airline insures its planes through its own captive insurer.
What is a factory mutual?
A mutual insurer focused on industrial risks and prevention.
Example: A factory gets safety help and may share profits/losses.
What are stock mutuals?
Shareholder-owned insurers offering fixed-premium policies that may pay dividends.
Example: A customer might get a dividend but isn’t an owner.
How does the government act as an insurer?
It offers insurance as the only option, a legal requirement, or an alternative.
Example: A driver must buy car insurance from a government provider.
What is monopolistic or compulsory insurance?
Insurance required by law or only offered by the government.
Example: Workers’ compensation provided only by the province.
What is alternative market insurance?
Optional coverage from private insurers in areas with basic government coverage.
Example: Buying extra car insurance from a private company.
What is Lloyd’s?
A London market where investors pool money to insure big or risky events.
Example: A group covers natural disasters or celebrity body parts.
What does insurance capacity mean?
The max amount of risk an insurer can take.
Example: An insurer might only cover up to $10 million per policy.
What is a syndicate in insurance?
A group that shares large insurance risks, especially in Lloyd’s market.
Example: Multiple underwriters join to cover a major event.
What is a coverholder?
A person or business allowed to sell insurance for a company.
Example: A broker who can issue policies directly.
What are reserves in insurance?
Money saved by insurers to pay future claims or unused premiums.
Example: Funds set aside for unpaid accident claims.
What is a commission in insurance?
Pay based on sales, like a percent of premiums sold.
Example:An agent earns money from each policy sold.
What does an actuary do?
Calculates risk and helps set insurance prices.
Example: Estimates how much to charge for car or life insurance.
What is ratemaking?
Setting insurance prices based on risk data.
Example: Using accident stats to decide car insurance rates.
What is a producer?
An agent or broker who sells insurance.
What does it mean to underwrite?
To assess if a risk should be insured.
Example: Reviewing a health history before approving a policy.
What is a claim?
A request for payment after a loss or accident.
Example: Asking your insurer to pay after a crash.
