IAI SP8 key terms

A schedule listing individual risks or claims covered by a reinsurance treaty, showing sums insured, premiums or claim details. It lets the reinsurer verify exposure and calculate amounts due under proportional arrangements.

A reinsurance rating method that divides historical ceded losses (often loaded for expenses and trend) by historical subject premium. It estimates the expected loss cost of a treaty layer using the cedent's own experience.

Claim-specific provisions set by the claims handler for the estimated remaining cost of known reported claims. They are reassessed as investigations progress and are separate from unallocated bulk provisions.

A reserving technique that applies age-to-age development factors derived from historical triangles to cumulative paid or incurred claims, projecting each cohort to its ultimate cost. It assumes past development patterns remain stable.

A reserving approach blending an a priori expected loss ratio with observed development. The reserve equals expected ultimate losses multiplied by the proportion still unreported, reducing reliance on volatile early data.

Incurred But Not Reported: an estimate for claims that have occurred but not yet been notified to the insurer, plus late development on known claims. It is a key component of technical provisions.

Incurred But Not Enough Reported: the expected future deterioration of claims already reported, where current case estimates prove insufficient. It captures development on known claims rather than wholly unknown ones.

A table arranging cumulative claims by accident year and development period, allowing actuaries to derive age-to-age factors. It is the core data structure for most deterministic reserving methods.

An adjustment applied in development-based reserving to estimate claim growth beyond the last observed development period. It is often derived from benchmark patterns or judgement where data is sparse.

An amount added to best-estimate liabilities so that another insurer would accept the transfer of the obligations. Under Solvency II it is calculated using a cost-of-capital approach on projected capital needs.

The probability-weighted average of future cash flows required to settle insurance obligations, discounted to present value. It excludes any risk margin and is a core building block of technical provisions.

The capital an insurer must hold to absorb a one-in-200-year adverse shock over one year. It can be calculated by a standard formula or an approved internal model under risk-based regimes.

A lower capital threshold below which supervisory intervention becomes automatic. It is typically simpler to calculate than the full solvency capital requirement and acts as a hard floor.

A insurer's internal process for assessing the adequacy of its risk management and capital over the business planning horizon. Supervisors expect it to be documented, board-approved and embedded in decision-making.

A firm-specific simulation framework, often using copulas or scenario generation, that estimates the insurer's own capital requirement. It must be validated and approved by the supervisor before use.

The total balance-sheet liability for insurance obligations, comprising the best estimate of future cash flows plus a risk margin. It covers both premium and claims-related obligations.

A capital framework where required capital scales with the risk profile of the insurer's assets and liabilities, rather than with premium or reserve volume alone. It encourages better risk selection and mitigation.

The condition in which an insurer holds sufficient capital resources to meet regulatory requirements and its own risk appetite under stress. It is monitored through coverage ratios of eligible capital to required capital.

Eligible own funds divided by the solvency capital requirement, expressed as a percentage. A ratio above 100% indicates surplus capital; supervisors and rating agencies watch it closely.

The portion of the premium intended to cover expected claims and claim settlement costs, excluding expenses and profit. It is the core output of frequency-severity or loss-cost ratemaking.

Underwriting expenses divided by written premium, showing the cost of acquiring and administering business. Combined with the loss ratio it forms the combined ratio, a key profitability measure.

The sum of the loss ratio and expense ratio. A value below 100% indicates an underwriting profit before investment income; above 100% indicates an underwriting loss.

Incurred claims divided by earned premium over a period. It measures claims cost relative to premium and is used both for pricing adequacy and for performance monitoring.

A pricing method that adjusts a manual rate using the insured's own historical loss experience, often credibility-weighted with class data. It rewards good risk records and is common in commercial lines.

The weight given to an insured's or class's own experience relative to broader benchmark data, based on the volume and stability of that experience. It underlies experience rating and reserving judgement.

A reinsurance pricing method that estimates expected losses to a layer from the distribution of sums insured and severity assumptions, rather than from the cedent's loss history. It suits low-frequency layers.

An estimate of the largest loss likely from a single event, such as a fire at one location, used in underwriting and catastrophe modelling. It informs capacity allocation and reinsurance purchasing.

A simulation tool combining hazard, vulnerability, and exposure data to estimate loss distributions from natural or man-made catastrophes. It supports pricing, capital setting and reinsurance decisions.

The average interval between events of a given severity, such as a 1-in-200-year loss. It expresses the exceedance probability of a loss and is used to calibrate capital and reinsurance layers.

The probability that a loss in a given period exceeds a stated amount. It is the inverse framing of return period and underpins layer attachment decisions in reinsurance structuring.

The loss level at which a reinsurance layer begins to respond. Losses below it are retained by the cedent; the layer pays the excess up to its limit.

A non-proportional reinsurance arrangement where the reinsurer pays losses above a retention up to a stated limit. It protects the cedent against large individual losses or events.

A proportional reinsurance agreement in which the reinsurer accepts a fixed percentage of every risk within scope, sharing premium and losses in the same proportion. It provides capacity and surplus relief.

A proportional reinsurance arrangement where the cedent retains a fixed amount per risk and cedes the excess up to a number of lines. It targets large individual risks rather than spreading all business.

The coordinated management of assets and liabilities so that cash flows and durations match and solvency is protected under interest rate and inflation changes. It is central to investment strategy for insurers.

Aligning the interest-rate sensitivity of asset portfolios with that of insurance liabilities. It reduces surplus volatility when rates move and supports solvency stability.

The risk that maturing asset cash flows must be reinvested at lower yields than assumed, reducing future returns. It matters for long-tail liabilities funded by shorter assets.

The risk that insureds behave less carefully, or claim more readily, because insurance protects them from loss. It is managed through deductibles, exclusions and claims monitoring.

The tendency for higher-risk individuals or firms to seek insurance more actively than lower-risk ones, worsening the pool's loss experience. Underwriting and pricing segmentation help control it.

The amount of each loss that the insured bears before insurance responds. It reduces small claims, controls moral hazard and lowers premium.

The principle requiring both insurer and insured to act honestly and disclose material facts relevant to the risk. Breach can allow the insurer to avoid or adjust the contract.

Information that would influence a prudent insurer's decision on whether to accept a risk or on what terms. The insured must disclose it when applying for cover.

A contractual promise by the insured that a stated state of affairs exists or will be maintained. Breach traditionally discharges the insurer from liability, though modern regimes often soften this.

The principle that insurance restores the insured to the financial position before the loss, without profit. It underpins sums insured, average clauses and subrogation rights.

The insurer's right, after paying a claim, to pursue third parties responsible for the loss in the insured's name. It supports the indemnity principle and reduces net claims cost.

The right of one insurer to recover a share of a loss from another insurer covering the same interest, preventing double recovery. It applies where policies cover the same risk.

The process of assessing and selecting risks, setting terms and pricing them consistently with the insurer's appetite. It links risk identification to rating and capital allocation.

The amount and type of risk an insurer is willing to accept in pursuit of its objectives, expressed in qualitative and quantitative terms. It drives underwriting limits and capital planning.

The total premium written by an insurer before deducting reinsurance ceded. It measures top-line business volume and feeds regulatory and performance reporting.

The portion of written premium attributable to the expired part of the policy period. It is matched against incurred claims in the loss ratio.

The liability representing premium received for cover not yet provided. It is released as the policy period elapses and is a key balance-sheet item for short-tail business.