General Insurance
General Insurance tests the short-tail and long-tail mechanics of non-life risk: pricing, reserving, reinsurance, capital and the UK regulatory framework. Expect numbers - development factors, burning costs, loss ratios, and the effect of the Ogden discount rate on bodily injury claims.
Pricing
- Frequency-severity or burning cost for established classes; exposure rating for new or thin data.
- Credibility-weight your own experience against a prior; use GLMs to set rating factors.
- Load for expenses, commission, reinsurance cost, profit and risk margin, and adjust for claims inflation.
Reserving
- Chain ladder on paid or incurred triangles gives development factors and a tail; add case reserves to reach IBNR.
- Bornhuetter-Ferguson blends an expected loss ratio with reported development and is preferred when data are immature or a large claim distorts the triangle.
- Long-tail reserves are discounted; the Ogden rate for personal injury lump sums moved from -0.25% to +0.5% with effect from 11 January 2025, reducing reserves for that head of claim.
Reinsurance
- Proportional (quota share, surplus) versus non-proportional (excess of loss, stop loss). Recoveries reduce net reserves but introduce counterparty credit risk.
Worked example
Cumulative paid claims are GBP 800k at 12 months and GBP 1,000k at 24 months. The 24-month-to-ultimate factor is 1.20, so the ultimate is GBP 1,200k and IBNR is GBP 200k. With a 40% quota share, net IBNR is GBP 120k, and the reinsurer's creditworthiness becomes a balance-sheet risk.
Traps
- Applying historic development factors to a class with a changing mix or a new large claim.
- Ignoring claims inflation when projecting ultimates.
- Mixing written and earned premium in a loss ratio.
- Omitting the unearned premium reserve for in-force policies.
- Double counting catastrophe loadings already inside the reinsurance cost.