Insurance Business Management and Professionalism
This domain covers running an insurer soundly and behaving professionally towards customers, regulators and the market.
Management functions
Insurers coordinate underwriting, claims, reinsurance, finance, investments, IT and distribution. Reinsurance protects solvency and supports capacity for large risks. Management must balance growth, risk appetite and capital.
Financial management
Premium is not profit. Earned premium relates to cover already provided; unearned premium is reserved for the unexpired period. Outstanding claims reserves include incurred but not reported claims. The combined ratio is the loss ratio plus the expense ratio. A ratio below 100% indicates an underwriting profit before investment income. Solvency margin and investment policy must match liabilities, including liquidity for claims.
Professionalism
Codes of ethics require integrity, competence, confidentiality, fair treatment of customers and management of conflicts of interest. Anti-money-laundering controls and whistleblowing arrangements support market integrity. Regulators expect fit and proper conduct, not just technical compliance.
Worked example
Earned premium is LKR 100m, incurred claims LKR 62m and expenses LKR 28m. Loss ratio = 62%; expense ratio = 28%; combined ratio = 90%, an underwriting profit of LKR 10m before investment income. Reasoning: written premium is not used for the ratio, and reserves must be provided before profit is recognised.
Traps that cost marks
- Confusing written premium with earned premium.
- Treating premium as profit.
- Ignoring IBNR and unearned premium reserves.
- Assuming reinsurance removes all risk.
- Treating ethics as optional rather than examinable conduct.