INS 3103 - Chap 7
INS 3103 - Chap 7 INS 3103
Popular in Principles of Insurance
Popular in Business
This 3 page Class Notes was uploaded by Tina Ta on Thursday March 3, 2016. The Class Notes belongs to INS 3103 at Mississippi State University taught by Seth Pounds in Fall 2015. Since its upload, it has received 29 views. For similar materials see Principles of Insurance in Business at Mississippi State University.
Reviews for INS 3103 - Chap 7
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 03/03/16
Chapter 7: Financial Operations of Insurers I. Property and Casualty Insurance Companies (Exhibit 7.1) A. Balance Sheet: summary of what comp. owns(assets) and what it owes(liab.), and dif. Btw total assets + total liab.(owner’s equity). -> TOTAL ASSET= TOTA LIAB. + OWNER’S EQUITY Primary assets for ins comp: fin. Asset – primarily bonds. Insurer liabilities include required reserves: Loss reserve + unearn premiums. Loss reserve: estimated amt for (unpaid claims) – which consist: Claims reported+adjust, but not yet paid Claims reported+filed, but not yet adj. Claims incurred but not yet reported to comp. Case reserve: loss reserve that ‘re established for/ indiv. Claim Method for determine case reserve: Judgment method: claim reserve is established for / indiv. Claim. Avg. value method: avg value is assigned to / claim. Tabular method: loss reserve are determined for certain claims for which amts paid depend on data derived fr motality, morbidity, and remarriage tables. Loss ratio method establish aggregate loss reserve for specific coverage line. Formula based on expected loss ratio is used to estimate loss reserve. Incurred but not reported (INBNR) reserve: reserve that must be establish for claims that hv already occurred but hvn’t been reported. Unearned premium reserve: liab. Item represent unearn portion of gross premiums on all outstanding policies at time of valuation: Its purpose is to pay for losses that occur during policy period. It’s also need so that refunds can be paid to policyholder that cancel their coverage. It also serves as basis for determine amt that must be paid to reinsurer for carry reinsured policies. Annual prodata method: 1 method of calculate reserve. Policyholders’ Surplus: dif. Btw ins comp.’s assets + liab. Stronger comp’s surplus position, greater is security for its policyholders. Lv of surplus: imp determinant of amt of new bus. that ins comp. can write. B. Income and Expense Statement: summarize revenue + expenses paid over a specified period of time. 2 principal sources of revenue for ins comp. are premiums + investment income. Earned premium: those premiums for which service service for which premiums were paid (ins protection) hs been tendered. Expenses include cost of adjust claims, pay insured losses that occurred, commissions to agents, premium taxes, and general ins expens. Revenues Expenses Net Income C. Measuring Profit or Loss Loss ratio: ratio of incurred losses + loss adj. expense to premiums earned. Expense ratio: equal to comp’s underwriting expenses divided by written premiums. Combined ratio: sum of loss ratio+ expense ratio. Positive ratio indicate underwriting loss. For every $100k in premiums comp. collected, it paid out $103,4 in claims + expense. But remember investments of comp.: investment income ratio compare net investment income to earn premiums. And then you use that to determine overall operating ratio. Overall operating ratio: equal to combined ratio – investment income ratio. = 1.034 – 0.088 = 0.946 = 94.6% -> If OOR is less than 100 => comp. was profitable. D. Recent Underwriting Results II. Life Insurance Companies A. Balance Sheet 1. Assets 2. Liabilities 3. Policyholders’ Surplus B. Income and Expense Statement 1. Income 2. Expenses 3. Net Gain from Operations C. Measuring Profitability III. Rate Making in Property and Casualty Insurance ( 2 objectives) A. Objectives in Rate Making - State Laws require: Rates sld be adequate for pay all losses + expense. Rate sldn’t excessive, such policyholder are paying more than actual value of their protection. Rate musn’t unfair discriminatory, exposure that are similar w respect to losses + expense sldn’t be charged significancy dif rates. 1. Regulatory Objectives 2. Business rate making Objectives include: Rates sld be easy to understand Rates sld be stable over short periods of time Rates sld be responsive over time to change loss exposure + change eco conditions. Rating system sld encourage loss control activities. B. Basic Rate Making Definitions Rate is price/ unit of ins Exposure unit: unit of measurement used in ins pricing (e.g: car-yr) Pure premium: portion of rate needed to pay losses + loss adjust expense. Loading: amt that must add to pure premium for other expenses, profit, margin for contingencies. Gross rate: consist of pure premium + loading element. Gross premium: paid by insured consist of gross rate multiply by number of exposure units. C. Rate Making Methods 1. Judgment Rating 2. Class Rating 3. Merit Rating a. Schedule Rating b. Experience Rating c. Retrospective Rating IV. Rate Making in Life Insurance
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'