FCIP F560 flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Combined Ratio

The sum of the loss and loss adjustment expense ratio and the underwriting expense ratio. A result above 100 percent indicates an underwriting loss before investment income.

Adverse Selection

The tendency of applicants with higher-than-average expected losses to seek coverage more actively. Insurers counter it with detailed applications, inspections, waiting periods, and experience-based pricing.

Moral Hazard

A change in insured behavior toward greater risk-taking because losses are covered. Deductibles, coinsurance, policy limits, and exclusions reduce the incentive.

Facultative Reinsurance

Reinsurance negotiated separately for each individual risk, allowing the reinsurer to accept or decline that specific exposure. Used for unusual or large risks outside treaty terms.

Quota Share Treaty

A pro rata treaty in which the cedent cedes a fixed percentage of premium and losses on every covered policy, typically receiving a ceding commission for acquisition costs.

Risk Transfer Test

A test of whether a reinsurance agreement transfers significant underwriting and timing risk. Insufficient transfer requires deposit, not reinsurance, accounting.

Net Retention

The amount of exposure an insurer keeps for its own account after ceding reinsurance. It drives surplus leverage and the volatility of results.

Case Reserve

An estimate set on a specific reported claim for expected ultimate indemnity and allocated expense. It is adjusted as investigation and development reveal more information.

IBNR Reserve

A reserve for losses incurred but not yet reported, plus development on known claims. It is estimated actuarially using development factors or expected loss ratios.

Allocated Loss Adjustment Expense

Claim costs assigned to a specific claim, such as defense counsel, expert investigation, and court costs. It is distinguished from unallocated overhead expense.

Subrogation

The insurer's right, after paying a loss, to pursue the legally liable third party for recovery. Recoveries reduce net paid losses in financial reporting.

Actual Cash Value

Replacement cost of damaged property less depreciation. Policies may instead provide replacement cost, agreed value, or functional valuation bases.

Pure Premium

Expected loss and loss adjustment expense per unit of exposure. It equals expected claim frequency multiplied by expected claim severity.

Loss Development Factor

An age-to-age ratio applied to reported losses at one valuation date to estimate their ultimate value at a later maturity. Selected factors form a development pattern.

Credibility

The weight given to an insured's or class's own experience relative to broader experience. Credibility rises with exposure volume and lower loss variability.

Bornhuetter-Ferguson Method

A reserving method blending expected losses with reported losses using the unreported percentage. It is useful for immature or volatile accident years.

Trend Factor

A factor adjusting historical loss costs for inflation, exposure changes, and benefit shifts to project the expected cost level of the future policy period.

Statutory Accounting Principles

Conservative insurer accounting rules emphasizing policyholder protection. Nonadmitted assets are excluded, acquisition costs are expensed immediately, and reserves are reported gross of reinsurance with separate recoverable assets.

Policyholders Surplus

The excess of admitted assets over liabilities, representing statutory net worth. It absorbs adverse loss development and supports premium writing capacity.

Unearned Premium Reserve

The portion of written premium attributable to coverage not yet provided. It is earned over the policy term and is a liability on the balance sheet.

Loss and LAE Ratio

Incurred losses and loss adjustment expenses divided by earned premium. It is the largest component of the combined ratio for property-casualty insurers.

Prior Approval Filing

A rate or form filing that must be reviewed and approved by the regulator before the insurer may use it. Other systems include file-and-use and use-and-file.

Unfair Discrimination

Charging different rates to insureds with similar expected loss characteristics without actuarial justification. Rates must be adequate, not excessive, and supported by data.

Guaranty Association

A state-established entity that pays covered claims of insolvent insurers up to statutory limits, funded by assessments on licensed insurers in the state.

Market Conduct Examination

A regulatory review of an insurer's sales, underwriting, rating, claims, and complaint practices for compliance with state law and fair treatment standards.

Producer Appointment

The insurer's formal notice to a state regulator authorizing a licensed producer to represent it. Appointment typically precedes solicitation of business in that state.

Segregation of Duties

A control separating authorization, custody, and recording of transactions so no single person can both cause and conceal an error or fraud.

Staff Authority

Advisory authority held by support functions such as actuarial, legal, and compliance. They review and recommend but do not command operating line units.

Managing General Agent

An intermediary granted underwriting, claims, or administrative authority by an insurer. The carrier retains oversight, audit, and ultimate responsibility for results.

Underwriting Appetite

A documented statement of the risk types, limits, and characteristics an insurer will accept, refer, or decline. It aligns underwriting decisions with strategy and capital tolerance.

Economic Capital

The capital required to absorb unexpected losses at a selected confidence level over a defined horizon. It exceeds expected loss and reflects portfolio diversification.

Risk Appetite Statement

A formal declaration of the aggregate risk an organization is willing to accept in pursuit of its objectives, translated into tolerances and limits by unit and risk type.