AIAF key terms

Accounting rules prescribed by state regulators that emphasize solvency and policyholder protection; generally more conservative than GAAP, requiring immediate recognition of certain costs.

Common financial reporting framework emphasizing matching of revenues and expenses; insurers use it for public reporting, often producing different results from statutory accounting.

Total premium charged on policies issued during a period, regardless of coverage period; it measures new business volume and drives cash collection.

Portion of written premium allocated to the coverage period that has elapsed; recognized as revenue as insurance protection is provided.

Liability representing premium received for coverage not yet provided; it is earned over the remaining policy term and protects policyholders if coverage ends early.

Estimate of unpaid amounts owed for claims that have occurred, including reported and unreported claims; a major liability and source of estimation uncertainty.

Provision for claims that have happened but have not yet been reported to the insurer; estimated using actuarial methods and historical reporting patterns.

Funds set aside for costs of investigating, defending, and settling claims, separate from the claim payment itself; includes allocated and unallocated expenses.

Under GAAP, capitalized costs of acquiring new business, such as commissions, amortized over the policy period; statutory accounting generally expenses them immediately.

Amount an insurer expects to collect from reinsurers for ceded losses and expenses; an asset that is subject to credit risk and may be reduced for uncollectible balances.

Liability recognized when expected future claim costs and expenses exceed unearned premium plus anticipated investment income; signals that a block of business is unprofitable.

Portion of surplus or earnings returned to participating policyholders; treated as an expense or distribution depending on accounting framework and declared by the board.

Recoveries from selling damaged property or pursuing third parties responsible for a loss; these reduce net claim costs and are estimated in loss reserves.

Insurer's assets minus liabilities, representing the cushion that absorbs unexpected losses and supports solvency; analogous to shareholders' equity for a stock insurer.

Sum of loss and expense ratios; a measure of underwriting profitability where a ratio below 100% indicates an underwriting gain before investment income.

Incurred losses and loss adjustment expenses divided by earned premium; shows the share of premium consumed by claims and indicates pricing adequacy.

Underwriting expenses divided by written premium; measures the cost of acquiring and servicing business relative to premium volume and is a component of the combined ratio.

Difference between earned premium and incurred losses and expenses; positive when premium exceeds claims and costs, excluding investment results and other income.

Return earned on invested assets, including interest, dividends, and realized gains; a key contributor to insurer profitability because premiums are collected before claims are paid.

Regulatory capital standard that compares an insurer's capital to risk-based requirements tied to asset, credit, and underwriting risk; identifies weakly capitalized companies.

Set of financial ratios used by regulators to screen insurers for potential solvency problems; unusual values trigger further review rather than automatic action.

Standardized annual financial report filed by insurers with state regulators; presents statutory financial position and results in prescribed formats and schedules.

Ability of an insurer to meet cash obligations as they come due without forced asset sales; supported by cash flow from premiums and maturing investments.

Process of coordinating investment choices with expected claim payments and other obligations; aims to manage interest rate and liquidity risk while meeting return objectives.

Measure of a bond's price sensitivity to interest rate changes and of the timing of cash flows; used to match asset and liability exposures.

Investment strategy that aligns bond maturities and coupon payments with projected claim payments over time; reduces reinvestment and interest rate risk.

Company-wide process for identifying, measuring, and managing risks across underwriting, investments, operations, and regulation; supports strategic decisions and capital allocation.

Computer simulation estimating potential losses from natural or man-made disasters; used for pricing, reinsurance purchasing, capital adequacy planning, and risk transfer decisions.

Required return investors demand for providing funds; insurers compare business returns to this hurdle when deciding which risks to retain or cede.

Transfer of risk from a primary insurer to another insurer; used to reduce volatility, increase capacity, and manage capital, though it introduces credit risk.

Written guidelines governing an insurer's investment objectives, constraints, permissible assets, and performance monitoring for the investment portfolio; supports prudent risk-taking and regulatory compliance.

Legal obligation to act in the best interests of policyholders, beneficiaries, or shareholders; requires loyalty, care, and disclosure of conflicts in financial decisions.

Oversight of insurer practices in sales, claims, and policy servicing through examinations and enforcement; protects consumers and complements financial solvency regulation.

State-backed mechanism that pays covered claims of insolvent insurers; funded by assessments on surviving insurers and limited by statutory caps.

Formal statement by an appointed actuary on the adequacy of reserves and related items; required in statutory filings and relied upon by regulators.

NAIC model requiring insurers to maintain internal controls over financial reporting and obtain audit oversight; similar in spirit to Sarbanes-Oxley for public companies.

Situations where personal or financial interests could compromise professional judgment; insurers manage them through disclosure, policies, independent oversight, and training.