IAI SP7 key terms

The total amount held to meet an insurer's obligations under its policies, covering claims already incurred plus any risk margin and prudential adjustments required by the regulator or the reporting basis.

A provision for claims incurred by the valuation date that have not yet been reported, or have been reported but not yet recorded as individual case reserves, because of reporting delays.

A deterministic method that applies development factors taken from historical claim triangles to cumulative paid or incurred claims, projecting them forward to an estimated ultimate cost.

The ratio between cumulative claims at one development period and cumulative claims at the previous period, estimated from a triangle and used to project claims to their ultimate level.

A table of cumulative claims by accident period and development period, allowing the actuary to observe how claims emerge over time and to derive development patterns.

A method that estimates the still-unreported portion of claims from an expected loss ratio applied to exposure, while using actual reported claims for the mature portion, blending expectation with experience.

A reserving approach that sets ultimate claims as a selected loss ratio multiplied by an exposure measure such as earned premium, useful where development data are sparse or immature.

A method that projects ultimate claim counts using a reported count development pattern, then multiplies by an assumed average cost per claim to obtain the ultimate loss.

Amounts set aside for individual reported claims, based on the claims handler's assessment of the outstanding liability on each claim at the valuation date.

The total estimated cost of all claims arising from a defined period of account once every claim is finally settled, including amounts already paid and those still outstanding.

Converting expected future claim payments to a present value at the valuation date using an assumed rate of investment return, so that provisions reflect the time value of money.

An amount added to the best-estimate liability to reflect the uncertainty of the reserve estimate and the cost of holding the capital that the uncertainty requires.

The risk that the amount ultimately needed to settle claims differs from the technical provisions held, caused by errors in assumptions about frequency, severity, development and trends.

Comparing earlier estimates of ultimates or reserves with the amounts that subsequently emerged, to judge whether the methods and assumptions used were reliable.

An accident year groups claims by the year the incident happened; an underwriting year groups them by the year the policy was written, which matters when cover spans several years.

A framework that sets required capital according to the risks an insurer actually carries, such as reserving, underwriting, market, credit and operational risk, rather than simply to premium volume.

The amount of capital a supervisor requires an insurer to hold so that it can meet its obligations with a high probability over a specified period.

A firm-built quantitative framework that simulates its assets, liabilities and capital under many scenarios to measure its own risks and the capital needed to support them.

The insurer's own regular assessment of the risks it faces, the capital needed for them, and how that compares with available capital, reviewed by the board and shared with the supervisor.

The amount and type of risk an insurer is willing to accept in pursuing its objectives, expressed through limits, tolerances and qualitative statements approved by the board.

The average loss in the worst outcomes beyond a chosen confidence level; it captures the severity of extreme events and is more conservative than Value at Risk.

Examining how reserves, capital and solvency respond to extreme but plausible adverse events or changes in assumptions, applied singly or in combination.

Splitting the total capital requirement among business lines or risk types so each carries a share reflecting its contribution to the firm's overall risk.

The reduction in total required capital, compared with adding up each risk's standalone requirement, that arises because different risks rarely peak at the same time.

The risk of very large aggregate losses from a single event or accumulation of exposures, such as an earthquake, modelled separately because ordinary frequency-based reserving does not capture it.

A reinsurance contract in which premium and claims are shared in fixed proportions, either a set percentage of each risk (quota share) or a share of the amount above the insurer's retention (surplus).

Reinsurance that covers the part of a loss above an agreed retention up to a limit, written per risk or per event, leaving the insurer responsible for losses below the attachment point.

An additional premium paid to restore the limit of an excess of loss contract after a claim has used part of it, usually pro rata to the amount and remaining period restored.

Amounts the insurer expects to collect from reinsurers for claims it has paid or will pay, recognised as an asset or deducted from gross liabilities.

The degree to which a reinsurance contract genuinely passes insurance risk to the reinsurer; contracts with little realistic loss transfer may need deposit or financing treatment.

Treating a reinsurance arrangement as financing rather than insurance, so premiums are recorded as a liability and no underwriting result is recognised on the contract.

The risk that a reinsurer or other counterparty fails to pay a valid claim, reducing the value of recoveries and requiring capital to be held against the exposure.

The part of gross IBNR that is recoverable under reinsurance treaties, which depends on the losses each treaty covers and on how the gross estimate is allocated.

The Insurance Regulatory and Development Authority of India, the statutory regulator that licenses insurers and sets solvency, reserving and reporting requirements for the market.

An actuary formally appointed under regulation to certify an insurer's liabilities and solvency, with defined duties to report results and to raise concerns with the regulator.

Professional standards issued by the actuarial body that prescribe how work such as reserving and capital modelling is to be documented, reviewed and reported to users.

Independent review of an actuary's reserving or capital work by another qualified actuary, checking method choice, assumptions and reasonableness before the results are signed off.

The excess of an insurer's admitted assets over its liabilities, usually expressed as a ratio to the required margin, which regulators monitor to gauge financial strength.

A periodic report in which the appointed actuary sets out the insurer's financial position, risks, reserving and capital adequacy, and gives an opinion on solvency.

Presenting reserve or capital results with ranges, key assumptions and sensitivity analysis, so that decision-makers understand how reliable the figures are and what could change them.