IFoA SA1 flashcards

34 cards. Read the term and the definition here. The deck at the top of this page is optional.

Beveridge model

Health system funded from general taxation with state-owned or state-controlled provision, as in the UK NHS. Coverage is usually universal and free at the point of use.

Bismarck model

Social health insurance funded by earmarked payroll contributions, with competing or regional sickness funds contracting providers. Germany and the Netherlands are common examples.

Risk equalisation

A mechanism transferring funds from insurers with low-risk members to those with high-risk members, reducing incentives for risk selection under community rating.

Adverse selection

A situation where individuals with higher expected claims are more likely to buy or retain cover, worsening the insured pool and forcing premium increases that drive out good risks.

Moral hazard

Changed behaviour by insured persons or providers because a third party pays, raising utilisation or cost. Deductibles, co-insurance and gatekeeping are common controls.

QALY

Quality-adjusted life year, equal to years of life multiplied by a utility weight between zero and one. Used to compare cost-effectiveness of treatments against a threshold.

Community rating

Pricing that charges the same premium to all members of a defined group regardless of individual health status, so cross-subsidy between healthy and sick members is built in.

Critical illness cover

A policy paying a lump sum on first diagnosis of a listed condition such as cancer or stroke. Pricing depends on incidence, survival and anti-selective take-up.

Income protection deferred period

The waiting time after incapacity before benefit payments start. A longer deferral reduces claim cost and removes short-duration claims.

Gross premium valuation

A pricing and reserving approach using best-estimate assumptions for claims, expenses, lapses and investment returns plus explicit margins, discounted to the valuation date.

Group experience rating

Renewal pricing based on the scheme's own claims history, blended with manual rates according to scheme size and credibility.

Long-term care benefit trigger

A defined threshold of need, commonly measured by inability to perform a set number of activities of daily living, which must be met before benefits are paid.

Multiple decrement table

A table combining several independent exit rates, where the overall rate is one minus the product of the complements of each individual decrement rate.

Claim inception rate

The rate at which insured lives start a new claim of a given type per unit of exposure, usually analysed by age, sex, occupation and duration.

Claim termination rate

The rate at which existing claims end through recovery, death or expiry, often modelled by claim duration because recovery rates vary strongly with time on claim.

Standardised mortality ratio

Observed deaths divided by expected deaths, where expected deaths are calculated by applying standard rates to the study population's exposure by age and sex.

Graduation

Fitting a smooth mathematical curve to crude age-specific rates to remove random noise, then testing the fit with chi-square, runs and standardised deviation tests.

IBNR reserve

A provision for claims incurred but not yet reported at the valuation date, estimated by chain-ladder, Bornhuetter-Ferguson or expected-loss ratio methods.

Solvency capital requirement

The capital needed to cover a one-year loss at the 99.5% confidence level under the Solvency II standard formula or an approved internal model.

Risk margin

An addition to best-estimate liabilities equal to the cost of holding future solvency capital, calculated as six percent of the present value of future capital requirements.

Best-estimate liability

The probability-weighted expected present value of future claim payments and expenses less future premiums, discounted using the risk-free yield curve.

Minimum capital requirement

A lower solvency floor beneath the SCR, calibrated to roughly 25-45% of the SCR, below which supervisory intervention becomes mandatory.

Duration gap

The difference between the durations of assets and liabilities. A zero gap, with matched present values, gives first-order immunisation against small interest rate shifts.

Immunisation

Matching the present value, duration and convexity of assets and liabilities so that surplus is protected against small parallel shifts in interest rates.

Reinvestment risk

The risk that cash flows received from maturing assets are reinvested at lower yields than assumed, reducing future income relative to liability requirements.

Quota share reinsurance

A proportional treaty in which the reinsurer takes a fixed percentage of every premium and pays the same percentage of every claim, usually with a ceding commission.

Excess of loss reinsurance

A treaty where the reinsurer pays claims above an agreed retention up to a limit, covering either each risk or each event.

Euler capital allocation

A marginal allocation method where each risk's capital equals its contribution to total portfolio risk, and the allocated amounts sum exactly to total diversified capital.

Risk appetite statement

A formal board-approved document setting the amount and types of risk an insurer is willing to accept, expressed as limits, ratios and qualitative constraints.

Capitation

A fixed payment per enrolled member per period regardless of services used, placing utilisation risk on the provider and requiring quality safeguards.

Bundled payment

A single price covering all care for a defined episode across providers, shifting cost risk to providers and requiring clear attribution and risk adjustment.

Risk adjustment

Adjusting capitation payments for the morbidity of enrolled members using diagnostic group models, to prevent favourable selection and fund high-risk members adequately.

Actuaries' Code

The IFoA professional code requiring integrity, competence and care, impartiality, compliance and speaking up when standards or regulations are breached.

Technical Actuarial Standard

A Financial Reporting Council standard setting requirements for the content, data quality and reporting of technical actuarial work in the UK.