IAI SP7 cheat sheet

Technical provisions are the present value of expected claim payments and expenses; a best estimate excludes prudential margins, while a risk margin is added only where the regime requires it.

Cumulative claims development is usually shown as paid claims and incurred claims (paid plus case reserves) by accident year and development period.

Chain ladder development factor: f_j = sum over accident years of C_{i,j+1} divided by sum of C_{i,j}; project latest cumulative claims by the product of future factors.

Bornhuetter-Ferguson ultimate = reported claims to date + expected ultimate loss × (1 − 1 / cumulative development factor to ultimate); it blends observed emergence with an expected loss ratio.

Expected loss ratio method sets ultimate = earned premium × selected loss ratio; it is appropriate when credible claims data are unavailable or immature.

IBNR = ultimate claims − reported claims, where reported claims include paid amounts and case reserves; it covers both unreported claims and future development of known claims.

Discounting uses a risk-free yield curve matched to claim payment timing; the choice of undiscounted versus discounted reserves changes comparability and capital.

Reserve uncertainty includes process variance, parameter error and model error; results are often communicated as central estimate, range and percentiles rather than one number.

Unallocated loss adjustment expenses cover claims handling costs not attributable to individual claims and must be included in technical provisions.

The solvency capital requirement is the capital needed to survive adverse events over one year at a specified confidence level, commonly 99.5% value at risk in risk-based regimes.

The minimum capital requirement is a lower supervisory threshold; breaching it triggers intervention, while the SCR is the target operating buffer.

Standard-formula capital aggregates non-life underwriting, market, credit and operational risk modules using prescribed correlations, producing a diversification benefit.

An internal model must satisfy use test, statistical quality, calibration, validation, documentation and governance requirements before regulatory approval.

ORSA is a forward-looking assessment of risk profile, capital needs and solvency under base and stressed business plans, owned by the board and reviewed by the supervisor.

Risk appetite translates risk capacity into limits and tolerances by risk type, business line and legal entity, and is linked to capital allocation and strategy.

Available capital is split into tiers by loss-absorbing quality; eligible amounts are restricted, and surplus capital equals eligible resources minus the SCR.

The risk margin is not a best estimate; it is the cost of holding required capital over the run-off, often calculated as 6% of the present value of future SCRs.

Reinsurance lowers net underwriting risk but creates counterparty credit risk and basis risk; capital models must reflect both effects.

Quota share cedes a fixed percentage of premium and losses; the cedent retains the same percentage of every covered risk, subject to commission terms.

Surplus treaty cedes the amount of each risk above the cedent's retention, up to a stated number of lines; the cession percentage varies by risk size.

Excess of loss cover pays losses in a layer above a retention up to a limit; key terms include event or risk basis, reinstatements and rate on line.

Stop loss protects aggregate losses or loss ratio above a retention, usually annual; it is non-proportional and may include an aggregate deductible.

Facultative reinsurance is placed risk by risk and can fill gaps in treaty capacity; treaties are automatic and cover defined classes or portfolios.

Reinsurance accounting requires significant insurance risk transfer; if risk transfer is insufficient, deposit accounting applies and the contract is not treated as reinsurance.

Gross reserves include ceded reserves in recoverables; net reserves equal gross liabilities less reinsurance recoverables, with allowance for doubtful recovery.

Reinsurance can reduce capital requirements by lowering net underwriting volatility, but credit risk, collateral and reinstatement premiums affect the net benefit.

Reinsurance recoveries on IBNR and case reserves are assets; they must be assessed for collectability, timing and any contractual disputes.

In India, IRDAI supervises insurers and sets solvency, reporting and appointed-actuary requirements; the minimum solvency ratio is 150% of required solvency margin.

Financial reporting for insurance contracts under IFRS 17 uses fulfilment cash flows, a risk adjustment and a contractual service margin released over service.

Actuarial standards require documented data, assumptions, methods, peer review where applicable, and clear communication of limitations and uncertainty.

The appointed actuary advises on reserves, capital and financial condition and has professional duties to report breaches or material concerns.

Data quality checks cover completeness, accuracy, consistency and appropriateness; reconciliations between claims, accounting and reserving data are essential.

Communication of results should state the purpose, scope, method, key assumptions, sensitivity and uncertainty, in language suited to the audience.

Professional ethics require integrity, objectivity, competence, confidentiality and avoidance of conflicts; assumptions must not be influenced by desired results.

Supervisory review may include on-site inspections, reserve reviews, capital model approval and scrutiny of ORSA and financial returns.

External audit and independent actuarial review provide challenge; documentation must allow another actuary to reproduce and assess the work.