IFoA SA4 flashcards
IFoA SA4 · 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.
- Combined ratio
- Loss ratio plus expense ratio; below 100% means an underwriting profit before investment income, while above 100% means underwriting losses must be covered by investment returns.
- Underwriting cycle
- Recurring pattern of soft and hard markets driven by capital availability and prior loss experience; soft markets follow surplus capital, hard markets follow capital depletion after large losses.
- Subscription market
- Market structure where several insurers or syndicates each take a share of the same risk under common terms, with a lead underwriter setting price and conditions for followers.
- Solvency Capital Requirement
- Capital calibrated to a 1-in-200 one-year value-at-risk of basic own funds; it must exceed the Minimum Capital Requirement and may be computed by standard formula or approved internal model.
- Risk margin
- Cost of holding non-hedgeable SCR and MCR capital for the run-off of obligations; under Solvency II it uses a 6% per annum cost-of-capital rate.
- ORSA
- Own Risk and Solvency Assessment: the insurer's forward-looking assessment of capital adequacy over the business plan, including stress and reverse stress tests and overall solvency needs.
- Pure premium
- Expected claim cost per unit of exposure, equal to claim frequency multiplied by average claim severity, before expenses, capital costs and risk margins are added.
- Burning cost
- Historical losses net of the deductible divided by historical exposure, trended and developed to the future period; the standard starting point for pricing excess layers.
- Credibility weighting
- Blending an insured's own experience with the class rate using a credibility factor Z: estimate equals Z times own experience plus one minus Z times class rate.
- Adverse selection
- Situation where insureds know more about their risk than the insurer, so higher-risk risks buy more cover at average rates, worsening the pool and requiring classification or loadings.
- Chain-ladder method
- Reserving method dividing the latest cumulative paid or incurred claims by cumulative development factors; it assumes past development patterns persist and suits stable, mature portfolios.
- Bornhuetter-Ferguson method
- Reserving method adding expected ultimate loss ratio times unearned exposure times the proportion not yet reported to claims reported to date; more stable than chain-ladder for immature years.
- IBNR
- Incurred But Not Reported reserves: provision for claims not yet notified plus development on known claims, estimated from development patterns and expected loss ratios.
- Exceedance probability curve
- Curve showing the probability that annual catastrophe losses exceed each loss amount; produced by catastrophe models from hazard, vulnerability and financial modules and used for capital and reinsurance decisions.
- Quota share reinsurance
- Proportional treaty where the cedant cedes a fixed percentage of premium and losses; it reduces volatility and expected profit, and a ceding commission offsets acquisition cost.
- Excess of loss reinsurance
- Treaty where the reinsurer pays losses above the cedant's retention up to a limit; the cedant's retained loss is capped per occurrence and the price reflects expected loss.
- Surplus treaty
- Proportional reinsurance ceding the amount by which a risk exceeds the cedant's retention, subject to a line capacity; cession varies by risk size rather than being a flat percentage.
- Reinstatement
- Provision restoring reinsurance limit after a loss, either free or for an additional premium; the cost or number of reinstatements must be reflected in the layer price.
- Contractual service margin
- IFRS 17 component representing unearned profit in a group of insurance contracts; it is recognised in profit over the coverage period as services are provided.
- Premium allocation approach
- Simplified IFRS 17 measurement option for short-duration contracts, allowing a liability for remaining coverage based on unearned premium rather than full fulfilment cash flows.
- Accident-year result
- Underwriting result attributing all losses from incidents in the year to that year, excluding development on prior years; differs from calendar-year and ultimate bases.
- Reserve development
- Change in estimated ultimate claims between reporting dates; favourable development releases reserves and flatters the calendar-year result, adverse development strengthens reserves.
- Three lines of defence
- Governance model where business units own risk, risk and compliance functions oversee and challenge, and internal audit provides independent assurance to the board.
- Risk appetite
- Board-approved statement of the amount and type of risk the insurer accepts, expressed as quantitative tolerances such as earnings-at-risk or probability of SCR breach plus qualitative limits.
- Reverse stress test
- Analysis identifying scenarios that would cause business failure or breach of a key tolerance, used to reveal vulnerabilities that conventional stress tests may miss.
- Model risk management
- Framework of independent validation, documentation, change control and a model inventory with owners, ensuring models are fit for purpose and limitations are understood.
- Triangulation
- Comparing results from several reserving or pricing methods, such as chain-ladder, Bornhuetter-Ferguson and expected loss ratio, and explaining divergences rather than blindly averaging.
- Expert judgement
- Documented actuarial adjustment to a model output, with rationale, quantified impact and review date, so that it can be challenged and audited.
- Materiality threshold
- Level below which an error or assumption change would not alter a decision; it guides the effort spent on modelling and the precision reported to stakeholders.
- Actuaries' Code principles
- Professional requirements of integrity, competence and care, impartiality, and compliance, applying to all actuarial work including roles outside formal actuarial positions.
- Conflict of interest
- Situation where personal or employer interests could compromise objective judgement; it must be identified, disclosed and managed, with independence of judgement maintained.
- Technical Actuarial Standards
- UK standards requiring actuarial work to be proportionate, transparent, comprehensible and documented, including data, assumptions and methods, so users can understand the results.