Techinical risks/Techinical risk management

Question 1

What are technical risks

Answer 1

The risk of balancing risks - the risk that total actual damage from claims will differ from the expectancy value in a period

Question 2

What causes technical risk

Answer 2

• Randomness
• Change
• Error

Question 3

Randomness

Answer 3

Higher or lower expected values

Question 4

Changes

Answer 4

Risks have changed since the were first calculated

Question 5

Error

Answer 5

The reference value is not correct or there was a miscalculation

Question 6

Expected reserves =

Answer 6

RB (Financial reserves at the beginning of the year) + P - Lexp

Question 7

What are the 5 policies for risk management

Answer 7

• Reserves policy
• Premuim policy
• Loss policy
• Rinsurance policy
• Portfolio policy

Question 8

What does premium policy involve

Answer 8

Saftey loading

Question 9

What happens if the safety loading is too high

Answer 9

Product is uncompetitive and you cant pool as many risks

Question 10

What is the gross risk premium/net premium/risk premium

Answer 10

Net risk premium + safety loading premium

Question 11

What is in the gross premium

Answer 11

risk premium, loading for admin, profit, tax

Question 12

What are the 4 methods of calculating gross risk premium

Answer 12

• Extended expectancy-value principal
• Variance principal
• Standard deviation principal
• Variation principal

Question 13

Extended expectancy-value premium

Answer 13

GRP= u + (loading) u

Question 14

What is the issue with the expectancy-value premium method

Answer 14

Expectancy value is not a great method of measuring spread

Question 15

Variance principal method

Answer 15

GRP= Exp value + loading (variance = std squared)

Question 16

What is the issue with using the variance principal

Answer 16

the answer is in €^2

Question 17

Standard deviation principal

Answer 17

GRP=expectancy value + loading factor(square root of variance)

Question 18

Variation coefficient

Answer 18

Exp. + (loading*standard deviation)/ exp

Question 19

What is the issue with the variation coefficient principal

Answer 19

Spread is underrated

Question 20

What does a safety loading do to the density function of a portfolio

Answer 20

Pushes it to the right

Question 21

What are the advantages of a safety loading premium (2)

Answer 21

• Orignal expected value of profits increase

- Probability of a loss is reduced

Question 22

Forms of premium policy (4)

Answer 22

• Safety premium
• Sharing losses with the insured
• Experience creating
• Premium adaptation clause

Question 23

What is another name for sharing losses with the insured

Answer 23

mutuals

Question 24

What is the advantage to the insurer in mutuals

Answer 24

No technical risks

Question 25

Mutuals

Answer 25

All deviations (positive or negative) of the actual loss are borne by the policy holder

Question 26

Experience rating

Answer 26

Premiums based on loss record

Question 27

Premium adaptation clauses

Answer 27

Allow for risk-related changes to the premium, this must be agreed upon in the contract

Question 28

Loss policy

Answer 28

The insurer tries to reduce or limit the loss

Question 29

Methods of loss policy

Answer 29

- Active damage management - Careful settlement of claims - Practice of settling claims

Question 30

active dammage managment

Answer 30

When the insurer has a service to prevent further damage (eg own hospital)

Question 31

Portfolio policy

Answer 31

Size and composition of portfolio

Question 32

How can an insurer affect their portfolio policy(4)

Answer 32

- Premium policy - Product policy - Commission for brokers, underwriting - mergers and acquisitions

Question 33

What types of portfolios (risk and spread) does an insurer have to choose between

Answer 33

- Higher exp. value and higher spread | - Opposite

Question 34

How should an insurer choose between high or low spread

Answer 34

My sigma model

Question 35

What is the advantage of higher reserves

Answer 35

Smaller chance of failure

Question 36

What is the disadvantage of a reserve for the insurer

Answer 36

Opportunity cost

Question 37

What is meant by the risk balancing process over time?

Answer 37

That the positive and negatives from each period balance out - Average damage should equal the total damage

Question 38

How can we balance risk over time

Answer 38

Liquidation reserves - Reinsurance - Adapt contract by agreements and adaptation clauses to not cover certain things - Change premiums