III IC-46 key terms

The amount a policyholder pays an insurer in exchange for insurance cover over a stated period. It is the insurer's primary revenue and is recorded in the revenue account when earned or written, depending on the accounting basis used.

Total premium on policies that took effect during a period, regardless of how much cover has already been provided. It is the figure that drives acquisition cost and reserve calculations for new business.

The portion of written premium that corresponds to cover already provided by the reporting date. It is the revenue recognised in the revenue account and equals written premium adjusted for movements in unearned premium reserves.

A liability representing premium received or receivable for cover that extends beyond the reporting date. It is released to revenue as time passes and is typically calculated on a daily pro rata or fixed-percentage basis.

An additional provision created when expected claims and expenses on unexpired policies exceed the unearned premium held for them. It prevents the accounts from overstating profit where future losses are already foreseeable.

The total cost of claims attributable to a period, comprising claims paid plus the movement in outstanding claims reserves. It is the largest expense line in the revenue account and the main driver of underwriting results.

A liability for claims that have been reported but not yet settled at the reporting date, including an estimate of the eventual settlement cost. It is reviewed for adequacy each period and adjusted through the revenue account.

An estimate for claims arising from incidents that have already happened but have not yet been notified to the insurer. It is a component of technical reserves and is usually derived using actuarial development methods.

Incurred claims expressed as a percentage of earned premium. It shows how much of each premium unit is consumed by claims and is a core indicator of pricing adequacy and underwriting performance.

Underwriting expenses, including acquisition costs and administrative overheads, expressed as a percentage of written or earned premium. It measures the cost efficiency of producing and servicing insurance business.

The sum of the loss ratio and the expense ratio. A figure below 100 percent indicates an underwriting profit before investment income, while a figure above 100 percent indicates an underwriting loss.

The profit or loss from insurance operations alone, calculated as earned premium less incurred claims and underwriting expenses. It excludes investment income and is reported in the technical or revenue account.

The section of an insurer's statutory accounts that reports the insurance result, showing premiums, claims, expenses and movements in technical reserves. It is presented separately from the non-technical account covering investment and other income.

The section of an insurer's accounts reporting income and expenses outside core underwriting, such as investment income, interest payable and taxation. Its result is combined with the technical result to give profit for the year.

Costs directly related to obtaining new insurance business, such as commissions and brokerage. They are recognised in the revenue account in the period the related premium is earned, not necessarily when paid.

An asset representing acquisition costs already paid that relate to premium not yet earned. The asset is amortised to the revenue account over the period the corresponding premium is earned, matching cost with revenue.

The transfer of part of an insurer's risk to another insurer in return for a share of premium. It affects the accounts through reinsurance premiums ceded, reinsurance recoveries and the presentation of gross and net figures.

An asset representing amounts due from reinsurers for claims the insurer has paid or provided for. It is assessed for impairment, since the insurer bears credit risk if a reinsurer fails to pay.

Premium retained by the insurer after deducting premium ceded to reinsurers. It is the base against which net claims and net technical reserves are compared in the revenue account.

The excess of an insurer's admissible assets over its required liabilities and reserves, measured against a regulatory minimum. It demonstrates the financial buffer available to absorb unexpected losses and protect policyholders.

Assets that regulators allow to be counted when assessing an insurer's solvency position. Assets that are illiquid, doubtful or not available to meet policyholder claims are excluded or subject to limits.

A reserve built up in profitable years to absorb fluctuations in claims experience, particularly for catastrophe or volatile classes. It smooths results over time and may be required or permitted by regulation.

The accounting principle that income and expenses are recognised when they are earned or incurred, not when cash changes hands. It underpins premium earning, claims reserving and matching of costs to revenue.

The rule that expenses should be recognised in the same period as the revenue they helped generate. In insurance it explains deferring acquisition costs and releasing unearned premium as cover is provided.

The convention that revenue and profits are not anticipated but losses and liabilities are provided for as soon as they are foreseen. It justifies creating reserves for unexpired risks and doubtful reinsurance recoveries.

A financial statement showing cash generated and used across operating, investing and financing activities during a period. For insurers it highlights the timing gap between premium collection and claims payment.

A statement of an insurer's assets, liabilities and capital at a point in time. Technical reserves, reinsurance recoverables and admissible assets are key lines in assessing financial strength.

Income earned from an insurer's investment portfolio, including interest, dividends and realised gains. It is reported in the non-technical account and often subsidises an underwriting loss.

A profit arising when an investment is sold for more than its carrying value. It is recognised in the accounts at the point of disposal, unlike an unrealised gain which exists only on paper.

An increase in the value of an investment still held at the reporting date. Whether it is recognised in the accounts depends on the measurement basis and the applicable investment valuation rules.

The regulatory standard requiring insurers to invest as a prudent person would, with regard to the safety, liquidity and diversification of the portfolio. It focuses on process and judgement rather than fixed asset limits.

Rules that cap the proportion of an insurer's assets that may be held in a particular asset class, issuer or counterparty. They limit concentration risk and are enforced through periodic regulatory returns.

Spreading investments across asset classes, issuers, sectors and geographies so that a single loss does not threaten the portfolio. It is a core requirement of insurance investment regulation and prudent risk management.

Aligning the timing and currency of investment cash flows with expected claim payments and other liabilities. Good matching reduces the risk that assets must be sold at a loss to meet obligations as they fall due.

The ease with which an asset can be converted to cash without significant loss in value. Insurers must hold sufficient liquid assets to meet claims and expenses as they fall due, which regulation explicitly requires.

The price that would be received to sell an asset in an orderly market transaction between willing parties. It is the basis on which many insurer investments are measured, with changes affecting capital and reported results.

The process of determining the amount at which investments and other assets are carried in the accounts. Regulatory rules may prescribe or restrict bases such as fair value, amortised cost or lower of cost and market.

The safekeeping of an insurer's investments by a regulated third party such as a custodian bank. Rules on custody protect policyholder assets from loss, misuse and commingling with the insurer's own funds.

A financial contract whose value derives from an underlying asset, index or rate, used by insurers mainly to hedge risk. Regulation typically restricts speculative use and requires adequate controls and disclosure.

Taking an investment or derivative position intended to offset an existing risk, such as interest rate or currency exposure. Regulators generally permit hedging while limiting positions taken purely for speculation.