IAI SP8 cheat sheet

General insurance covers non-life perils: property (fire, flood, storm), casualty (liability, employers' liability), motor, marine/aviation, engineering, and financial lines (D&O, professional indemnity).

Products are written on either an occurrence basis (claims triggered by when the event happened) or a claims-made basis (triggered when the claim is notified, with a retroactive date limiting cover).

Market structure: Lloyd's syndicates, company insurers, mutuals, MGAs (managing general agents) and captives; distribution runs through brokers, agents, direct and aggregators.

Underwriting cycle: soft markets show falling rates and widening terms; hard markets follow capital depletion from large losses, driving rate increases and tighter terms.

Regulatory regimes shape market entry: solvency capital requirements, policyholder protection schemes, and conduct rules (e.g. fair value assessments) affect pricing and product design.

Gross written premium (GWP) measures total premium before reinsurance; net written premium (NWP) = GWP minus ceded reinsurance premium.

Combined ratio = loss ratio + expense ratio; a ratio below 100% indicates an underwriting profit before investment return.

Risk = uncertainty about outcomes; pure risk has only downside (insurable), speculative risk has upside and downside (generally not insurable).

Insurable risks typically require: fortuitous loss, measurable loss, large number of similar exposures, and no catastrophic concentration for the insurer.

Risk identification tools: exposure surveys, claims data analysis, scenario workshops, site inspections, and business process mapping.

Frequency-severity analysis: expected loss = frequency × average severity; high-frequency/low-severity risks suit retention and deductibles, low-frequency/high-severity risks suit transfer.

Risk control: avoidance, reduction (loss prevention), and separation/duplication; risk financing: retention, transfer (insurance, reinsurance, capital markets), and hedging.

Expected loss (mean) and standard deviation describe a loss distribution; value at risk (VaR) and tail value at risk (TVaR) measure extreme outcomes.

Risk appetite and tolerance statements translate an insurer's objectives into quantitative limits on underwriting, investment and operational risk.

Pure premium = expected claims ÷ exposure; loaded premium = pure premium ÷ (1 − expense ratio − profit margin) when expenses are a percentage of premium.

Burning cost method: expected loss ratio or loss cost derived from historical claims adjusted to current exposure and trended for inflation and frequency/severity changes.

Frequency-severity method: estimate frequency per unit exposure and average severity separately, then multiply to obtain the pure premium.

Loss development and trend adjustments: historical losses are projected to ultimate and trended to the average date of the future policy period.

Risk classification must be actuarially justified, statistically credible, and compliant with anti-discrimination and fairness rules; avoid proxy discrimination.

Credibility weighting: blended estimate = Z × own experience + (1 − Z) × relevant benchmark, where Z reflects the volume of credible data.

Premium components: expected loss, loss adjustment expense, commission, other acquisition and admin expenses, reinsurance cost, cost of capital, and profit margin.

IBNR (incurred but not reported) reserves cover claims already incurred but not yet reported; IBNER covers development of reported claims.

Technical provisions = best estimate of liabilities plus a risk margin; best estimate reflects expected future cash flows, discounted where permitted.

Chain-ladder method: project cumulative claims using age-to-age development factors; ultimate = latest cumulative × product of remaining factors.

Bornhuetter-Ferguson method: ultimate = reported to date + expected unreported (based on a priori loss ratio × expected premium), reducing reliance on thin data.

Expected loss ratio method: ultimate = expected loss ratio × earned premium; used for new lines or immature accident years.

Case reserves are set per claim by adjusters; aggregate reserves add IBNR, ULAE (unallocated loss adjustment expenses) and risk margin.

Reserve adequacy testing uses back-testing, sensitivity analysis, and scenario stress; reserve releases boost profit, strengthening reduces profit.

Proportional treaties: quota share (fixed percentage of premium and losses ceded) and surplus (cedes amounts above a retention, proportional to a line size).

Non-proportional treaties: excess of loss (reinsurer pays losses above a retention up to a limit) and stop loss (covers aggregate loss ratio above a threshold).

Facultative reinsurance is placed per risk; treaty reinsurance covers a defined portfolio automatically.

Reinsurance commission and profit commission offset ceded costs; ceding commission is typically a percentage of ceded premium.

Net cost of reinsurance = ceded premium − ceding commission − expected recoveries; reinsurance reduces volatility and frees capital but transfers margin.

Reinstatement provisions: after a loss, cover may be reinstated for additional premium, often pro rata to the amount and time used.

Counterparty risk: reinsurer credit quality, collateral, and recoverable concentration must be assessed and reflected in capital and reserves.

Solvency capital requirement (SCR) is typically calibrated to a 99.5% one-year VaR of economic capital; minimum capital requirement (MCR) is a lower floor.

Own risk and solvency assessment (ORSA) requires the insurer to assess its capital adequacy under its own risk profile and forward-looking scenarios.

Capital model components: underwriting risk, market risk, credit risk, operational risk, and diversification benefit from imperfect correlation.

Aggregation: total capital = sqrt(Σᵢ Σⱼ ρᵢⱼ σᵢ σⱼ) under a correlation matrix; diversification benefit = sum of standalone capital − aggregated capital.

Available capital (own funds) is split into tiers by loss absorbency and permanence; eligible capital must meet SCR and MCR.

Regulatory capital regimes include risk-based (Solvency II-style), factor-based, and hybrid approaches; local regulators may add buffers and stress tests.

Model validation, documentation, and governance (model risk management) are required for internal models used in regulatory capital.

General insurers hold assets to cover technical provisions and capital; liabilities are typically short-to-medium duration and uncertain in timing.

Duration matching: match asset and liability durations to limit interest rate sensitivity; convexity matters for larger rate moves.

Liquidity management: hold sufficient liquid assets to meet large or clustered claims without forced asset sales.

Investment policy sets strategic asset allocation, credit quality limits, concentration limits, and currency matching rules.

Credit spread risk: widening spreads reduce asset values; default risk affects recoverable assets backing reserves.

ALM metrics: surplus at risk, interest rate sensitivity (DV01), and cash flow matching for predictable claim patterns.

Regulatory investment rules often apply the prudent person principle and require assets to be held in matching currencies and sufficient quality.

Underwriting result = earned premium − incurred claims − expenses; combined ratio = loss ratio + expense ratio.

Loss ratio = incurred claims ÷ earned premium; expense ratio = underwriting expenses ÷ earned premium.

Earned premium reflects cover provided over the period; unearned premium reserve is the portion of written premium relating to future cover.

Investment return on technical provisions and capital contributes to total result; return on equity (ROE) measures profitability relative to capital.

IFRS 17 requires insurance contracts to be measured using fulfilment cash flows plus a contractual service margin (CSM), released to profit over coverage.

Reserve movements affect reported profit: strengthening reserves reduces profit; releases increase profit without cash impact.

Key performance indicators: combined ratio, ROE, reserve development, premium growth, retention ratio, and expense ratio.

Actuaries must comply with professional codes of conduct: integrity, competence, objectivity, confidentiality, and transparency with clients and regulators.

Conflicts of interest must be identified, disclosed, and managed; independence of judgment is required when advising on pricing, reserving or capital.

Communication must be clear, balanced, and appropriate to the audience; state assumptions, limitations, data quality, and uncertainty explicitly.

Peer review and documentation support the reliability of actuarial work and allow reproducibility of results.

Whistleblowing and escalation: material errors or unethical conduct should be reported through appropriate channels, including regulators where required.

Professional standards require continuing professional development (CPD) and adherence to technical actuarial standards for specific work types.

Advice should distinguish fact from opinion, quantify uncertainty where possible, and avoid misleading presentation of results.

General insurance covers non-life perils: property (fire, flood, storm), casualty (liability, employers' liability), motor, marine/aviation, engineering, and financial lines (D&O, professional indemnity).

Products are written on either an occurrence basis (claims triggered by when the event happened) or a claims-made basis (triggered when the claim is notified, with a retroactive date limiting cover).

Market structure: Lloyd's syndicates, company insurers, mutuals, MGAs (managing general agents) and captives; distribution runs through brokers, agents, direct and aggregators.

Underwriting cycle: soft markets show falling rates and widening terms; hard markets follow capital depletion from large losses, driving rate increases and tighter terms.

Regulatory regimes shape market entry: solvency capital requirements, policyholder protection schemes, and conduct rules (e.g. fair value assessments) affect pricing and product design.

Gross written premium (GWP) measures total premium before reinsurance; net written premium (NWP) = GWP minus ceded reinsurance premium.

Combined ratio = loss ratio + expense ratio; a ratio below 100% indicates an underwriting profit before investment return.

Risk = uncertainty about outcomes; pure risk has only downside (insurable), speculative risk has upside and downside (generally not insurable).

Insurable risks typically require: fortuitous loss, measurable loss, large number of similar exposures, and no catastrophic concentration for the insurer.

Risk identification tools: exposure surveys, claims data analysis, scenario workshops, site inspections, and business process mapping.

Frequency-severity analysis: expected loss = frequency × average severity; high-frequency/low-severity risks suit retention and deductibles, low-frequency/high-severity risks suit transfer.

Risk control: avoidance, reduction (loss prevention), and separation/duplication; risk financing: retention, transfer (insurance, reinsurance, capital markets), and hedging.

Expected loss (mean) and standard deviation describe a loss distribution; value at risk (VaR) and tail value at risk (TVaR) measure extreme outcomes.

Risk appetite and tolerance statements translate an insurer's objectives into quantitative limits on underwriting, investment and operational risk.

Pure premium = expected claims ÷ exposure; loaded premium = pure premium ÷ (1 − expense ratio − profit margin) when expenses are a percentage of premium.

Burning cost method: expected loss ratio or loss cost derived from historical claims adjusted to current exposure and trended for inflation and frequency/severity changes.

Frequency-severity method: estimate frequency per unit exposure and average severity separately, then multiply to obtain the pure premium.

Loss development and trend adjustments: historical losses are projected to ultimate and trended to the average date of the future policy period.

Risk classification must be actuarially justified, statistically credible, and compliant with anti-discrimination and fairness rules; avoid proxy discrimination.

Credibility weighting: blended estimate = Z × own experience + (1 − Z) × relevant benchmark, where Z reflects the volume of credible data.

Premium components: expected loss, loss adjustment expense, commission, other acquisition and admin expenses, reinsurance cost, cost of capital, and profit margin.

IBNR (incurred but not reported) reserves cover claims already incurred but not yet reported; IBNER covers development of reported claims.

Technical provisions = best estimate of liabilities plus a risk margin; best estimate reflects expected future cash flows, discounted where permitted.

Chain-ladder method: project cumulative claims using age-to-age development factors; ultimate = latest cumulative × product of remaining factors.

Bornhuetter-Ferguson method: ultimate = reported to date + expected unreported (based on a priori loss ratio × expected premium), reducing reliance on thin data.

Expected loss ratio method: ultimate = expected loss ratio × earned premium; used for new lines or immature accident years.

Case reserves are set per claim by adjusters; aggregate reserves add IBNR, ULAE (unallocated loss adjustment expenses) and risk margin.

Reserve adequacy testing uses back-testing, sensitivity analysis, and scenario stress; reserve releases boost profit, strengthening reduces profit.

Proportional treaties: quota share (fixed percentage of premium and losses ceded) and surplus (cedes amounts above a retention, proportional to a line size).

Non-proportional treaties: excess of loss (reinsurer pays losses above a retention up to a limit) and stop loss (covers aggregate loss ratio above a threshold).

Facultative reinsurance is placed per risk; treaty reinsurance covers a defined portfolio automatically.

Reinsurance commission and profit commission offset ceded costs; ceding commission is typically a percentage of ceded premium.

Net cost of reinsurance = ceded premium − ceding commission − expected recoveries; reinsurance reduces volatility and frees capital but transfers margin.

Reinstatement provisions: after a loss, cover may be reinstated for additional premium, often pro rata to the amount and time used.

Counterparty risk: reinsurer credit quality, collateral, and recoverable concentration must be assessed and reflected in capital and reserves.

Solvency capital requirement (SCR) is typically calibrated to a 99.5% one-year VaR of economic capital; minimum capital requirement (MCR) is a lower floor.

Own risk and solvency assessment (ORSA) requires the insurer to assess its capital adequacy under its own risk profile and forward-looking scenarios.

Capital model components: underwriting risk, market risk, credit risk, operational risk, and diversification benefit from imperfect correlation.

Aggregation: total capital = sqrt(Σᵢ Σⱼ ρᵢⱼ σᵢ σⱼ) under a correlation matrix; diversification benefit = sum of standalone capital − aggregated capital.

Available capital (own funds) is split into tiers by loss absorbency and permanence; eligible capital must meet SCR and MCR.

Regulatory capital regimes include risk-based (Solvency II-style), factor-based, and hybrid approaches; local regulators may add buffers and stress tests.

Model validation, documentation, and governance (model risk management) are required for internal models used in regulatory capital.

General insurers hold assets to cover technical provisions and capital; liabilities are typically short-to-medium duration and uncertain in timing.

Duration matching: match asset and liability durations to limit interest rate sensitivity; convexity matters for larger rate moves.

Liquidity management: hold sufficient liquid assets to meet large or clustered claims without forced asset sales.

Investment policy sets strategic asset allocation, credit quality limits, concentration limits, and currency matching rules.

Credit spread risk: widening spreads reduce asset values; default risk affects recoverable assets backing reserves.

ALM metrics: surplus at risk, interest rate sensitivity (DV01), and cash flow matching for predictable claim patterns.

Regulatory investment rules often apply the prudent person principle and require assets to be held in matching currencies and sufficient quality.

Underwriting result = earned premium − incurred claims − expenses; combined ratio = loss ratio + expense ratio.

Loss ratio = incurred claims ÷ earned premium; expense ratio = underwriting expenses ÷ earned premium.

Earned premium reflects cover provided over the period; unearned premium reserve is the portion of written premium relating to future cover.

Investment return on technical provisions and capital contributes to total result; return on equity (ROE) measures profitability relative to capital.

IFRS 17 requires insurance contracts to be measured using fulfilment cash flows plus a contractual service margin (CSM), released to profit over coverage.

Reserve movements affect reported profit: strengthening reserves reduces profit; releases increase profit without cash impact.

Key performance indicators: combined ratio, ROE, reserve development, premium growth, retention ratio, and expense ratio.

Actuaries must comply with professional codes of conduct: integrity, competence, objectivity, confidentiality, and transparency with clients and regulators.

Conflicts of interest must be identified, disclosed, and managed; independence of judgment is required when advising on pricing, reserving or capital.

Communication must be clear, balanced, and appropriate to the audience; state assumptions, limitations, data quality, and uncertainty explicitly.

Peer review and documentation support the reliability of actuarial work and allow reproducibility of results.

Whistleblowing and escalation: material errors or unethical conduct should be reported through appropriate channels, including regulators where required.

Professional standards require continuing professional development (CPD) and adherence to technical actuarial standards for specific work types.

Advice should distinguish fact from opinion, quantify uncertainty where possible, and avoid misleading presentation of results.