Cpcu 520 - Assignment 1

Front 1

Alien insurer

Back 1

An insurer incorporated or formed in another country

Front 2

Avoidance

Back 2

Eliminating an existing loss exposure or making the decision to not incur the loss exposure

Front 3

Combined ratio

Back 3

combined ratio = expense ratio + loss ratio

Front 4

Cooperative insurers

Back 4

Owned by policyholders and formed to provide insurance to members at minimum cost; risk is transferred to the corporation

Front 5

Domestic insurer

Back 5

Insurer incorporated in or formed under the laws of the state in which the insurer is operating

Front 6

Expense ratio

Back 6

expense ratio = expenses / premiums

Front 7

Fair Access to Insurance Requirements (FAIR) plans

Back 7

Provide property insurance to qualified property owners unable to obtain insurance from an insurer

Front 8

Financial basis combined ratio

Back 8

Incurred loss and expenses divided by earned basis premiums

Front 9

Foreign insurer

Back 9

An insurer incorporated in or formed under the laws of a state other than the state in which the insurer is operating

Front 10

Insurance

Back 10

Risk management method in which all or a portion of financial consequences resulting from specified loss exposures is transferred from the insured to the insurance company

Front 11

Law of large numbers

Back 11

Principle in mathematics stating that the accuracy of predictions increases as the number of independent yet similar exposure units increases

Front 12

Licensed (or admitted) insurer

Back 12

An insurer that has been granted a license to operate in a given state

Front 13

Loss ratio

Back 13

Ratio of incurred losses to earned premiums; may be calculated with or without loss adjustment expenses

Front 14

Operating profit or loss

Back 14

The total of investment profit or loss plus underwriting profit or loss

Front 15

Pool

Back 15

Formed by several insurers joined together to insure risks that the individual insurers (members) are not willing to cover alone

Front 16

Proprietary insurers

Back 16

Insurance companies established to generate a profit for the owners

Front 17

Risk control

Back 17

Reducing or eliminating the frequency or severity of a loss

Front 18

Risk financing

Back 18

Providing a way to pay for losses that are incurred

Front 19

Trade basis combined ratio

Back 19

Incurred losses and loss adjustment expenses are divided by earned premiums; underwriting expenses are divided by written premiums; addresses weakness in statutory combined basis ratio

Front 20

Unlicensed (or nonadmitted) insurer

Back 20

An insurer that has not been granted a license

Front 21

Highlight

Back 21

Insurance is a risk management method in which all or a portion of financial consequences resulting from specified loss exposures is transferred from the insured to the insurance company

Front 22

List the six steps in the risk management process

Back 22

1. All possible loss exposures must be identified
2. The identified loss exposures must be analyzed
3. Examine the techniques available to address the loss exposures
4. Choose the appropriate risk management method
5. Implement the appropriate risk management method
6. Monitor the risk management plan and make adjustments as necessary

Front 23

List the four ways to classify insurers

Back 23

1. By ownership
2. By location of incorporation
3. By licensing status
4. By marketing distribution system

Front 24

List five characteristics of mutual insurance companies

Back 24

(Memory aid: ABODE)
1. Advance premium mutuals: policyholders pay an initial premium and a premium at each renewal
2. Board-appointed officers and employees conduct business
3. Owned by policyholders
4. Dividends: profits in excess of those added to surplus are returned to policyholder as dividends
5. Elected board of directors: policyholders elect board of directors to direct the operations

Front 25

List the four objectives or insurers

Back 25

1. Generate a profit
2. Meet the needs of customers
3. Compliance with legal requirements
4. Fulfill the duties owed to society

Front 26

List the internal constraints (five reasons insurers may not meet objectives or may become insolvent)

Back 26

1. Market recognition
2. Financial resources
3. Expertise is not sufficient
4. Efficiency is not maxmized
5. Size

Front 27

External constraints
(six reasons insurers may not meet objectives or may become insolvent)

Back 27

1. Regulation
2. Public opnion
3. Competition
4. Economic conditions
5. Marketing operations
6. Other external constraints: legislative changes, catastrophic losses, and riots and civil unrest

Front 28

List the twelve functions of the insurer

Back 28

Three core functions:
1. Marketing
2. Underwriting
3. Claims
Nine additional functions
4. Actuarial
5. Premium audit
6. Reinsurance
7. Investments
8. Legal services
9. Human resources
10. Accounting
11. Information technology
12. Loss control

Front 29

List the three ways in which underwriting and marketing work together

Back 29

1. Underwriting determines which applications will be accepted; the applications are developed based on marketing information.
2. Underwriting and marketing must identify ways to make applications that are marginable be acceptable
3. Feedback obtained by the marketing department can be used to assist the underwriting department in developing products

Front 30

List the two ways in which IT and other departments work together

Back 30

1. Information technology enables all departments to exchange information
2. Data is gathered and stored by the information technology department

Front 31

List the three sources of operating profit or loss

Back 31

1. Investment income
2. Realized capital gains or losses
3. Unrealized capital gains or losses