IAI SP8 flashcards
IAI SP8 · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Occurrence vs claims-made
- Occurrence policies respond to events occurring during the policy period regardless of when reported; claims-made policies respond to claims notified during the period, often with a retroactive date.
- Combined ratio
- Loss ratio plus expense ratio, expressed as a percentage of earned premium. A value below 100% indicates an underwriting profit before investment income is considered.
- Underwriting cycle
- The recurring pattern of soft and hard market conditions driven by competition and capital availability. Hard markets follow large losses, raising rates and tightening terms.
- Pure vs speculative risk
- Pure risk offers only loss or no loss and is generally insurable. Speculative risk involves possible gain or loss and is typically not insurable.
- Expected loss
- The mean of a loss distribution, computed as frequency multiplied by average severity. It drives the pure premium and expected claims in reserving and capital work.
- Value at risk
- The loss threshold not exceeded with a given probability over a defined period. It is widely used to calibrate capital requirements at a chosen confidence level.
- Pure premium
- Expected claims divided by exposure, excluding expenses and profit. It forms the base to which expense loadings and margins are added to derive a gross rate.
- Burning cost method
- A pricing approach using historical claims experience, adjusted for trend and exposure, to estimate the expected loss cost for the future period.
- Credibility weighting
- A method blending an insured's own experience with a broader benchmark, weighted by the volume and reliability of the data available for that insured.
- Frequency-severity method
- A pricing technique estimating claim frequency per unit of exposure and average claim severity separately, then multiplying them to obtain the pure premium.
- IBNR
- Incurred but not reported reserves cover claims that have occurred but are not yet known to the insurer. They are estimated statistically and form part of technical provisions.
- Chain-ladder method
- A development technique projecting cumulative claims to ultimate using age-to-age factors. It assumes historical development patterns remain stable for future periods.
- Bornhuetter-Ferguson method
- A reserving method combining reported claims with an expected unreported amount based on an a priori loss ratio, reducing dependence on immature data.
- Risk margin
- An addition to the best estimate of liabilities reflecting the cost of holding capital against uncertainty in reserves, as required in some solvency regimes.
- Quota share treaty
- A proportional reinsurance arrangement where the reinsurer accepts a fixed percentage of every risk's premium and losses within the treaty scope.
- Excess of loss
- A non-proportional reinsurance cover where the reinsurer pays losses above a retention up to a stated limit, protecting against severe individual claims.
- Facultative reinsurance
- Reinsurance placed for an individual risk, allowing the insurer to cede risks outside treaty terms. The reinsurer assesses each risk separately.
- Reinstatement provision
- A treaty clause allowing cover to be restored after a loss, usually for additional premium calculated pro rata to the amount and time used.
- Solvency capital requirement
- The capital a regulator requires an insurer to hold, often calibrated to a high-confidence value at risk over one year, to absorb significant unexpected losses.
- ORSA
- The own risk and solvency assessment requires an insurer to evaluate its capital adequacy under its own risk profile and forward-looking scenarios.
- Diversification benefit
- The reduction in total required capital relative to the sum of standalone risk capitals, arising because risks are imperfectly correlated and rarely peak together.
- Capital aggregation formula
- Total capital under a correlation matrix equals the square root of the sum over all pairs of correlation times standalone capital products.
- Duration matching
- Aligning the interest rate sensitivity of assets with that of liabilities so that surplus is insulated from parallel shifts in yield curves.
- Liquidity risk
- The risk of being unable to meet claim payments without forced asset sales at depressed prices. Insurers hold liquid buffers against clustered claims.
- Credit spread risk
- The risk that widening credit spreads reduce the market value of bond holdings backing reserves, eroding surplus and regulatory capital.
- Prudent person principle
- A regulatory investment standard requiring insurers to invest only in assets whose risks they can identify, measure, monitor and manage appropriately.
- Earned vs written premium
- Written premium is booked when cover is sold; earned premium is recognised as cover is provided over the policy period. The difference is unearned premium.
- IFRS 17
- An accounting standard measuring insurance contracts using fulfilment cash flows plus a contractual service margin released to profit as cover is provided.
- Return on equity
- Net profit after tax divided by shareholders' equity. It measures how efficiently an insurer generates profit from the capital invested by shareholders.
- Reserve development
- The change in estimated ultimate claims as new information emerges. Adverse development reduces profit; favourable development releases reserves and increases profit.
- Conflicts of interest
- Situations where personal or organisational interests could compromise objective advice. They must be identified, disclosed and managed to preserve professional independence.
- Actuarial communication
- Presenting results clearly to the intended audience, stating assumptions, data limitations, uncertainty and the distinction between fact and professional opinion.