III IC-46 flashcards
III IC-46 · 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.
- Accounting equation
- Assets equal liabilities plus capital. Every transaction recorded in insurance books must preserve this balance, so each debit has a matching credit entry.
- Earned premium
- The portion of written premium attributable to the expired part of the policy period. It is the income figure used when computing loss and combined ratios.
- Unearned premium reserve
- Liability for the unexpired portion of policies in force. Calculated as written premium multiplied by the fraction of the policy term still to run at the reporting date.
- Claims incurred
- Claims paid in the period plus closing outstanding claims reserve minus opening outstanding claims reserve. It measures the true cost of claims for the period.
- Outstanding claims reserve
- Estimate of amounts payable for claims reported but not yet settled, plus claims incurred but not reported, held as a liability at the balance sheet date.
- Loss ratio
- Claims incurred divided by earned premium, expressed as a percentage. It shows how much of premium income is consumed by claims.
- Combined ratio
- Loss ratio plus expense ratio. A result below 100 percent indicates an underwriting profit before investment income is added.
- Expense ratio
- Underwriting expenses divided by written premium, expressed as a percentage. It measures the cost of acquiring and administering policies.
- Underwriting result
- Earned premium minus claims incurred minus underwriting expenses. Investment income is added separately to arrive at the overall operating result.
- Unexpired risk reserve
- Additional reserve raised when expected claims and expenses on unexpired policies exceed the unearned premium held, signalling probable future losses.
- Ceded premium
- Premium paid to a reinsurer for transferring part of the risk. It reduces net written premium and is recorded as an expense or deduction.
- Reinsurance recoveries
- Amounts reclaimed from reinsurers for claims already paid or reserved. They reduce net claims incurred in the income statement.
- Solvency margin
- Excess of admissible assets over liabilities, compared with a regulator-set minimum. It demonstrates the insurer can meet obligations as they fall due.
- Inadmissible assets
- Assets excluded from solvency calculations, such as goodwill, prepayments, and doubtful debts, because they cannot readily be converted to cash.
- Admissible assets
- Assets the regulator accepts when measuring solvency, typically cash, government securities, listed equities, and qualifying property held for policyholder security.
- Prudent person rule
- Investment standard requiring the care, skill, and diligence of a prudent manager, with diversification and avoidance of speculative or unsuitable holdings.
- Concentration limit
- Regulatory cap on exposure to one issuer, counterparty, or asset class as a percentage of admitted assets, preventing dangerous reliance on a single source.
- Asset-liability matching
- Aligning investments with technical provisions by currency, duration, and liquidity so that assets can meet claim payments when they fall due.
- Technical provisions
- Liabilities for unearned premium, outstanding claims, and related reserves. Assets backing them must satisfy matching and admissibility rules.
- Connected-party investment
- Investment in a related company, director, or affiliate. Such holdings are restricted, capped, and require disclosure to the regulator.
- Market valuation
- Pricing listed securities at quoted market value on the reporting date. Unrealised gains or losses flow into the investment result.
- Independent appraisal
- Periodic valuation of property or unlisted assets by a qualified independent valuer, required because no active market price exists.
- Derivative use restriction
- Rules permitting derivatives only for hedging or efficient portfolio management, with adequate cover and controls, not for speculative trading.
- Regulatory reporting
- Periodic submission of investment and solvency returns to the supervisor. Limit breaches must be notified and remedied within prescribed deadlines.
- Liquidity requirement
- Holding sufficient readily realisable assets to meet expected claim payments and surrenders without forced sale of long-term investments.
- Diversification
- Spreading investments across issuers, sectors, and asset classes to reduce the impact of any single default or market fall.
- Investment return
- Income plus realised and unrealised gains or losses on invested assets, expressed against average invested funds for the period.
- Cash flow matching
- Structuring asset maturities so that cash inflows coincide with expected claim outflows, reducing reinvestment and liquidity risk.
- Capital adequacy
- Requirement that available capital exceeds the regulator's minimum margin, calculated from premium or claims exposure and adjusted for investment risk.
- Custody of assets
- Safekeeping arrangements placing securities with an approved custodian or depository, separate from the insurer's own operations.
- Investment policy statement
- Document setting objectives, permitted asset classes, limits, and governance for the portfolio, approved by the board and filed where required.
- Prohibited investments
- Holdings banned or capped by regulation, such as speculative derivatives, unsecured loans to related parties, or assets lacking reliable valuation.