AAii 302 Insurance Operations & Finance flashcards
AAii 302 Insurance Operations & Finance · 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.
- Underwriting
- The risk-selection process that classifies a submission, decides whether to accept it, and sets terms, conditions, and price. It precedes binding and policy issue.
- Binding authority
- The contractual power granted to an agent or MGA to commit the insurer to coverage before the policy is issued. Limits and classes are specified in the agreement.
- Endorsement
- A written amendment to an in-force policy that changes coverage, limits, exposures, or named insureds. It takes effect on its stated date and is recorded in the policy file.
- Non-renewal
- A decision not to continue a policy at its expiration. It differs from cancellation because coverage runs to the end of the current term, subject to statutory notice rules.
- First notice of loss
- The initial report of a claim to the insurer. It captures date, cause, and parties and starts the claims lifecycle, including reserve setting and investigation.
- Case reserve
- An estimate set on an individual reported claim for expected ultimate payment and expense. It is reviewed and adjusted as investigation proceeds.
- IBNR
- Incurred but not reported: a reserve for claims that have occurred but are not yet known to the insurer, plus development on known claims. It is estimated actuarially.
- Quota share treaty
- A proportional reinsurance agreement in which the reinsurer assumes a fixed percentage of every covered policy's premium and losses, up to stated limits.
- Surplus share treaty
- A proportional treaty in which the insurer retains a fixed line per risk and cedes the excess up to a stated number of lines, so cession percentages vary by policy.
- Premium audit
- A post-term review of actual exposure, such as payroll or sales, against the estimate used at inception. The difference is billed or returned by endorsement.
- Straight-through processing
- Handling a submission or transaction end to end without manual rekeying. It depends on structured data, rules engines, and integration between underwriting and policy administration.
- Policy administration system
- The core system of record for policy terms, endorsements, billing, and renewals. It feeds premium and reserve data into the financial ledger.
- Loss ratio
- Incurred losses divided by earned premium for a period. It measures claims cost against premium and is one component of the combined ratio.
- Combined ratio
- Loss ratio plus expense ratio. A result below 100% indicates an underwriting profit; above 100% indicates an underwriting loss before investment income.
- MGA delegated authority
- A managing general agent's contractual power to underwrite, price, or handle claims for an insurer. The insurer retains the risk and must monitor the relationship.
- Written premium
- The premium charged on policies issued or bound during a period, regardless of the coverage period. It is the basis for many statutory reporting measures.
- Earned premium
- The portion of written premium recognized as revenue for coverage already provided. It increases as the policy term elapses, typically pro rata.
- Unearned premium reserve
- The liability for premium received but not yet earned. It equals written premium minus earned premium and is released over the remaining coverage period.
- Expense ratio
- Underwriting expenses divided by written premium. It captures acquisition, general, and administrative costs and combines with the loss ratio to form the combined ratio.
- Underwriting cash flow
- Premiums collected minus losses paid minus expenses paid. It measures liquidity timing and differs from underwriting income, which uses incurred amounts.
- Statutory accounting principles
- Conservative, solvency-focused rules used for regulatory reporting. They expense acquisition costs immediately and emphasize policyholder protection over matching.
- GAAP accounting
- Accrual-based financial reporting that matches revenue and expense, defers acquisition costs, and recognizes deferred taxes. Results can differ from statutory figures for the same book.
- Risk-based capital
- A regulatory measure comparing total adjusted capital to an authorized control level derived from charges for asset, credit, underwriting, and business risk.
- Float
- Premiums collected before claims and expenses are paid. The insurer invests this balance, so investment income depends on its size and duration.
- Cash flow testing
- Projecting asset and liability cash flows under multiple interest-rate scenarios to test whether reserves and capital remain adequate. Adverse scenarios stress lapses and claim timing.
- Reinsurance recoverable
- The amount a ceding insurer expects to collect from reinsurers for ceded losses. It is an asset subject to collectibility and counterparty credit assessment.
- Loss reserve
- The balance-sheet estimate of ultimate incurred losses for reported and unreported claims. It is reviewed for adequacy and adjusted as development emerges.
- Investment income
- Return earned on invested assets backing reserves and capital, including interest, dividends, and realized gains. It offsets underwriting results.
- Duration
- A measure of a bond portfolio's sensitivity to interest-rate changes. It is used to match asset cash flows with liability obligations.
- Solvency margin
- The excess of admissible assets over required liabilities and capital. Regulators use it to confirm the insurer can meet obligations under stress.
- Deferred acquisition cost
- An asset under GAAP representing acquisition expenses, such as commissions, capitalized and amortized over the policy period rather than expensed at issue.
- Reinsurance leverage
- The ratio of ceded premium or reserves to net retained amounts. High leverage increases dependence on reinsurer credit quality and recoverable collectibility.