IFoA SP8 flashcards
IFoA SP8 · Build recall with a focused review session.
12 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Burning cost
- Incurred claims including IBNR and claims expenses divided by earned exposure, trended and adjusted for rate changes, used as a starting estimate of future expected loss cost.
- Risk premium
- The expected cost of risk plus expenses and a margin for capital and profit; it excludes loadings for parameter and process uncertainty which are added separately in technical pricing.
- Frequency-severity model
- A pricing approach that models claim count per unit exposure and average claim size separately, then multiplies them to obtain expected loss cost per exposure.
- IBNR reserve
- A provision for claims incurred but not yet reported, estimated using development methods, expected loss ratios or Bornhuetter-Ferguson blending of reported and a priori estimates.
- Chain-ladder method
- A reserving technique that applies historical development factors to cumulative paid or incurred claims to project ultimate losses; it assumes stable reporting and settlement patterns over time.
- Bornhuetter-Ferguson method
- A reserving method combining an a priori expected loss with reported development, giving weight to the expected loss for immature years where reported data are thin.
- On-leveling
- Adjusting historical premiums to current rate levels using cumulative rate change factors so that loss ratios across accident years are comparable for pricing analysis.
- Solvency capital requirement
- The capital needed to absorb adverse deviations in underwriting, market, credit and operational risk over a one-year horizon at a specified confidence level, aggregated using correlations.
- Reinsurance cost to cedant
- Premium paid less expected recoveries, plus the implicit cost of reduced capital relief and earnings volatility; it should be compared with the capital benefit obtained.
- Discounting of reserves
- Reducing reserves to present value using risk-free rates matching the currency and duration of claim payments, reflecting the time value of money in long-tail lines.
- Large loss loading
- An explicit addition to the burning cost for the expected cost of large individual claims, estimated from a severity distribution or historical large-loss experience rather than average severity.
- Exposure base
- The unit over which premium is charged, such as payroll, turnover, vehicle-years or policy-years, chosen because it correlates with expected claim frequency or severity.