Korea Insurance Actuary flashcards

34 cards. Read the term and the definition here. The deck at the top of this page is optional.

Net premium

The premium calculated using only mortality/morbidity and interest, excluding expenses and profit margins. For whole life insurance, it equals the net single premium divided by the annuity-due factor.

Prospective reserve

The present value of future benefits minus the present value of future net premiums at a given duration. It represents the amount held to meet obligations for in-force policies.

Retrospective reserve

The accumulated value of past net premiums minus the accumulated cost of insurance (death benefits paid). It equals the prospective reserve under consistent assumptions.

Makeham's law

A mortality model where the force of mortality is μ_x = A + B c^x. It adds a constant to Gompertz's law to account for non-age-related causes of death.

Commutation functions

Tabulated values like D_x = v^x l_x and N_x = Σ D_{x+k} used to simplify actuarial calculations. They allow quick computation of life insurance and annuity present values.

Continuous insurance

Insurance where the benefit is paid at the moment of death. Its net single premium is the integral of discounted survival probability times force of mortality.

Endowment insurance

A contract that pays a benefit if the insured dies within a specified term, or at the end of the term if the insured survives. It combines term insurance and a pure endowment.

Joint life status

A status that exists as long as both lives are alive. The present value of a joint life annuity is the sum of discounted probabilities that both survive to each payment date.

Compound Poisson model

A risk model where the number of claims follows a Poisson distribution and individual claim amounts are independent and identically distributed. It is fundamental in collective risk theory.

Adjustment coefficient

The positive root R of the equation λ + δ = λ M_X(r) in the Cramér-Lundberg model. It provides an exponential upper bound on ruin probability via Lundberg's inequality.

Panjer recursion

A recursive formula to compute the distribution of aggregate claims when claim counts follow a (a,b,0) class distribution, such as Poisson or negative binomial.

Stop-loss premium

The expected value of (S - d)_+, where S is aggregate claims and d is the deductible. It can be computed as the integral of the survival function from d to infinity.

Risk measures VaR and TVaR

VaR at level α is the smallest value x such that the probability of loss exceeding x is at most 1-α. TVaR is the average of losses beyond VaR, a coherent risk measure.

Fisher equation

Relates nominal interest rate i, real rate r, and inflation π: (1+i) = (1+r)(1+π). It is used to convert between nominal and real returns.

Duration

A measure of the sensitivity of a bond's price to interest rate changes, calculated as the weighted average time to cash flows. Modified duration approximates percentage price change for small yield changes.

CAPM

The Capital Asset Pricing Model states that expected return equals the risk-free rate plus beta times the market risk premium. Beta measures systematic risk relative to the market.

Expected utility

A theory for decision making under risk where the utility of a gamble is the probability-weighted average of utilities of outcomes. Risk-averse individuals have concave utility functions.

IFRS 17

An international accounting standard for insurance contracts. It requires measurement of insurance liabilities using fulfilment cash flows and a contractual service margin, with profit recognized over coverage period.

K-ICS ratio

The Korean Insurance Capital Standard ratio equals available capital divided by required capital. It measures solvency and must exceed 100%, with supervisory action below 150%.

Combined ratio

The sum of the loss ratio and expense ratio. A ratio below 100% indicates underwriting profit, while above 100% indicates an underwriting loss.

Embedded value

The sum of net asset value and value of in-force business. It represents the economic value of an insurance company's existing portfolio.

Immunization

An asset-liability management strategy that matches the duration and convexity of assets and liabilities to protect surplus from interest rate changes.

Duty of disclosure

The policyholder's obligation to truthfully answer the insurer's questions about material facts. Breach allows the insurer to cancel the contract within specified periods.

Insurable interest

A legal requirement that the policyholder must benefit from the continued life of the insured or suffer loss from the insured event. It prevents gambling contracts.

Cooling-off period

A period (typically 15 days) after contract inception during which the policyholder can cancel the insurance contract and receive a refund of premiums paid, minus any coverage cost.

K-ICS

The Korean risk-based capital regime introduced in 2023, replacing RBC. It assesses capital adequacy using market-consistent valuation and risk factors for insurance, market, credit, and operational risks.

Bancassurance

The distribution of insurance products through banks. In Korea, it is regulated with caps on sales share for life and non-life insurers.

Unearned premium reserve

A liability representing the portion of written premiums that applies to future coverage periods. It is gradually earned as the policy period elapses.

IBNR

Incurred But Not Reported claims reserve. It estimates the liability for claims that have occurred but have not yet been reported to the insurer as of the valuation date.

Reinsurance

Insurance purchased by an insurer to transfer part of its risk to a reinsurer. It can be proportional (quota share, surplus) or non-proportional (excess of loss, stop loss).

Central Limit Theorem

States that the sum (or average) of a large number of independent, identically distributed random variables is approximately normally distributed, regardless of the underlying distribution.

Maximum likelihood estimation

A method of estimating parameters by maximizing the likelihood function, which is the joint probability of the observed data as a function of the parameters.

Type I error

The error of rejecting a true null hypothesis. Its probability is denoted by α, the significance level of the test.

Copula

A function that links marginal distributions to a joint distribution. It is used to model dependence between random variables, such as claim amounts across lines of business.