Term
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Definition
| Risk that insurance compnay has to pay more for claims than it recieved in (net) premiums for the policy |
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Term
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Definition
| "Risk is the payer of premiums and product of claims" |
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Term
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Definition
| At company level, risk that total claim paymetns exceed total assets (premiums +reserve captial) in a given period |
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Term
- Fixed premium payments in advance
- Random nature of claim payments
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Definition
| 2 Causes of underwriting risk: (both causes must be ture) |
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Term
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Definition
T/F?
Mean is a godo estimator for expected value |
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Term
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Definition
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Term
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Definition
| Safety loading and _______ are substitutes? |
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Term
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Definition
Premium and Capital Policy
Can use effciency gain to decrease premiums for competitive reasons to ______ market share |
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Term
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Definition
Investments
Variation/risk in investment returns ________ need for safety loading and or captial |
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Term
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Definition
| Who owns mutual companies? |
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Term
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Definition
| An option to charge an additional premium at the end of the year? |
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Term
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Definition
Types of Insurers
Goal: to provide minimum cost insurance to policy holders while providing a descent product; non-profit (non chariatable) |
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Term
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Definition
How are Mutual Insurers' Management structured?
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Term
| policy holders own, board of directors manage |
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Definition
| Who owns a mutual and who manages it? |
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Term
| Yes, but not often by the largest Mutuals, makes sense for smaller companies |
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Definition
| Do Mutuals use the Assessment Rule? |
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Term
| Yes; no they are tax free |
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Definition
| Do Mutuals use Participating dividends? Are they taxed? |
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Term
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Definition
| What is the objective of a Stock Insurer? |
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Term
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Definition
| What is the structure of a Stock Insurer's management? |
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Term
| stockholder owned; board of directors manage |
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Definition
| Who owns a Stock company and who manages the company? |
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Term
| no, shareholders absorb the losses |
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Definition
| Do stock insurers use the assessment rule? |
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Term
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Definition
| Do Stock Insurers use participating dividends? |
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Term
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Definition
| Are stock insurer's dividends taxed? |
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Term
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Definition
| Are Reciprocal Exchanges incorporated? |
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Term
| Reciprocal Exchanges are unincorporated |
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Definition
| What is the main difference between Mutuals and Reciprocal Exchanges? |
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Term
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Definition
| What is the objective of a Reciprocal Exchange? |
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Term
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Definition
| Who runs the Reciprocal Exchange company? |
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Term
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Definition
| Do Reciprocal Exchanges have captial? |
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Term
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Definition
| Do Reciprocal Exchanges have a board of directors? |
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Term
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Definition
| Do Reciprocal Exchanges have an assessment rule? |
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Term
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Definition
| Do Reciprocal Exhcanges have participating dividends? |
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Term
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Definition
| Can a mutual take over/purchase a Stock insurance compnay? |
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Term
| no, because the mutual is owned by the policy holders adn there is no way to separate from policies |
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Definition
| Can a stock compnay take over a mutual? |
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Term
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Definition
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Individuals come together and jointly underwrite risks
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Each member takes on a % of the risk
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Each investor, called "names" liable to the fulleds extend of personal assets?
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Term
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Definition
| What is a Lloyd's Associations' objective? |
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Term
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Definition
| Does Lloyd's Association have unlimited liability? |
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Term
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Definition
| Do Lloyd's Associations have Participating dividends? |
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Term
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Definition
| Do Lloyd's Associations have an assessment rule? |
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Term
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Definition
| Does Lloyd's of London have unlimited liability? |
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Term
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Definition
| Converts to a stock insurer |
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Term
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Definition
| What is the cheapest way to purchase another compnay? |
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Term
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Definition
| CEO compensation is tied to __________? |
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Term
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Definition
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Term
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Definition
| Which is type of insurer has a more flexible structure, a mutual insurer or a stock insurer? |
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Term
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Definition
| For a regulated industry, is the insurance industry had to enter/exit? |
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Term
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Definition
| What line of insurance was the first type of insurance product? |
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Term
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Definition
| Who was the first type of compnay to establish limited liability? |
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Term
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Definition
| What ruling established the initial state regulation of insurance industry? |
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Term
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Definition
| Which Supreme court ruling established that Insurance is Interstate commerce? |
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Term
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Definition
| Which Supreme court ruling serves as the current basis for state regulation? |
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Term
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Definition
Insurance is subject "Only to the extent not regulated by the states"
- Boycott, intimidation subject to federal anti-trust law
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Term
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Definition
- Created Accounting standards to determine financial stability
- States make insurance companies regularly provide financial statements
- Makes recomendations, most states choose to follow them
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Term
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Definition
| Sharing of loss data helps/hurts consumers? |
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Term
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Definition
Ratings Bureaus
- largest
- established by merger in 70's
- smaller companies heavily rely on them for estimates of loss data
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Term
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Definition
| Goal of __________: reporting financial history. Hopefully giving us information relevant for the future |
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Term
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Definition
GAAP vs. SAP
Income shows up when delivery of service is recieved, even if the cash is not recieved |
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Term
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Definition
GAAP vs. SAP
Matching of revenues? |
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Term
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Definition
GAAP vs. SAP
compiled for shareholders, investors |
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Term
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Definition
GAAP vs. SAP
Mismatching of revenues and expenses |
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Term
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Definition
GAAP vs. SAP
used to report to regulators to protect policy holders |
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Term
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Definition
| Shut down, sell everything to pay off all claims? |
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Term
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Definition
GAAP vs. SAP
incrimintelly earns premiums |
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Term
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Definition
| assets which are easy to sell |
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Term
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Definition
| Assets not easy to sell and are not included on the balance sheet |
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Term
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Definition
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Term
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Definition
| The term in statutory accounting for equity |
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Term
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Definition
| We gain/loose policyholder's surplus by growing? |
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Term
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Definition
| Fast growth results in ________ problems |
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Term
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Definition
| If we have a negative Policyholder's surplus, our compnay is _______? |
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Term
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Definition
| As interest rates increase, bond values _______? |
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Term
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Definition
| When a bond is selling at a discount, today's interest rate is __ than the bond rate? |
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Term
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Definition
| Bond values increase when interest rates ________? |
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Term
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Definition
| Do you have to pay taxes on municipal bonds? |
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Term
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Definition
| If your firm is profitable, you should purchase ______ bonds for the tax advantage; you don't have to write anything off? |
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Term
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Definition
| If your firm is not profitable, you should purchase ________ bonds because they have better interest rates? |
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Term
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Definition
| Stocks are carried at _______ value? |
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Term
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Definition
| If interest rates increase, but lots of losses in this year, the bond price is now ____, but book value does not change. If they sell it, they get ________ than the amount stated on the left side of the balance sheet. It creates a drain on surplus, a liquidity problem |
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Term
| cost+improvements-depreciaition |
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Definition
| Formula for calculating real estate values? |
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Term
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Definition
Asset or liability?
Agent balances |
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Term
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Definition
Asset or liability?
Reinsurance |
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Term
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Definition
| premium owned by agents but not yet forwarded |
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Term
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Definition
| Furniture, equipment, supplies, automobiles, computer software, premiums past 90 days? |
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Term
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Definition
| Used for losses that have not happened yet |
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Term
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Definition
| Loss reserves account for ______% of liabilities |
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Term
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Definition
| Used to cover losses which have already occurred |
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Term
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Definition
| Is time value of money factored into the loss reserves? |
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Term
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Definition
_________ Tail Business Lones:
- larger fraction of loss reserve for losses that have not happened yet
- ex. medical malpractice, commercial multi peril
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Term
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Definition
_______ Tail Business Lines:
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Fire
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Workers' comp
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Auto liability
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Term
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Definition
| Is it possible for an insurance company to grow into bankruptcy? |
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Term
| Loss Adjustment Reserve (LAE) |
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Definition
__________ ________ _______
fees for adjusting, legal fees, travel expinse, saleries
Costs going way up due to increasing litigation expenses
Overall ______ was 17% of Losses |
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Term
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Definition
| The balance sheet item representing an insurer's net worth under statutory accounting |
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Term
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Definition
| An insurer liability representing the ineurer's obligation to pay claims that have occurred but have not yet been paid |
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Term
| Loss adjustment expense reserve |
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Definition
| An insurer liability representing the expense amounts it has incurred to settle claims that have not yet been paid |
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Term
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Definition
| An insurer liability representing the amount of premiums recieved from policyholders that are not yet earned |
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Term
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Definition
___________ Errors
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Whether the reserve estimates are too high/low
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Over tiem investors, regulators, us, will find out if our reserve predictions are accurate
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Term
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Definition
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Term
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Definition
| Reduce tax liability, reduce profitability, _______ reserves |
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Term
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Definition
| If you have a bad year and there is pressure on your credit rating, you should ______ reserves to increase profitability |
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Term
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Definition
If your profits are high, then tax % is _________
If your profits are low, then tax % is __________ |
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Term
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Definition
| Cushion compnay needs to deal with unexpected fluctuations; regulators watch this closely |
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Term
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Definition
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Term
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Definition
| What are the two sources of revenues for an insurance company? |
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Term
| premiums earned-losses incurred-other underwriting expenses |
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Definition
| Underwriting revenue formula? |
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Term
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Definition
| When you sell a stock at a higher price than when you paid for it? |
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Term
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Definition
| Insurance leverage uses very little _____ tail financing? |
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Term
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Definition
| Does insurance leverage include large fixed assets? |
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Term
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Definition
T/F?
Insurance leverage magnifies your net result on return on equity? |
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Term
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Definition
| What is the ratio that measures operating leverage? |
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Term
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Definition
| What ratio explains teh amount of risk that Policyholder's surplus is exposed to? |
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Term
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Definition
| By shifting busienss into ___ tail lones, we can increase our insurance leverage? |
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Term
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Definition
| If the Kenny ratio (PW/S) is less than or equal to ___, regulators will look at closely |
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Term
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Definition
| If admitted assets/PW is greater than or equal to ____, the regulators will look at the firm more closely |
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Term
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Definition
| What ratio is a standard measure of underwriting profitability? |
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Term
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Definition
| What ratio measures the risk for evey dollar we have in surplus? |
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Term
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Definition
| If you have 2 lines with the same combined ratio, the line with the ___ tail is more profitable in teh end |
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Term
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Definition
| If the underwriting profitability of the insurance company is not good, you should use _______ to make a profit for the compnay |
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Term
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Definition
The more regulation or more guaranty fund protection ______ incentive for consumers to worry about insolvencies |
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Term
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Definition
| In a Soft market, price is ___ the "true economic price of insurance" |
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Term
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Definition
| In a Hard market, price is ____ the "true economic price of insurance" |
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Term
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Definition
| Are Guaranty funds and appropriate risk management solution for corporations? |
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Term
| IRIS (Insurance Regulatory Information System) |
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Definition
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An early warning system using ratios
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If 3 or more ratios are out of range, send a representative to take a closer look at the organization
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The first inacted rating system
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Term
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Definition
| The coefficient of Variation neglects premiums and capital, it only looks at _____? |
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