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64 Cards in this Set
- Front
- Back
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what do actuaries do |
study the financial implications of future contingent events |
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growth factor |
1+i |
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discount factor |
1/1+i |
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exponential growth |
A(N) = A(0)*(1+i)^N |
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definition of annuity |
equal payments of a fixed amount each period for N parts |
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annuity formula |
p*an = (1-v^n)/i |
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accumulated value formula |
p*Sn = ((1+i)^n-1)/i |
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event |
clearly defined to easily agree an event has happened and therefore is covered by insurance |
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homogeneity improves |
accuracy |
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risk classification/underwriting factors |
sex, gender, age |
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credibility and what affects it |
how well does your data predict the value of p quantity and quality |
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cycle of estimates |
gather data make estimates set prices/prems gather more data revise estimates reset prices/premiums and/or other limits |
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underwriting/risk classification |
super preferred preferred standard substandard uninsurable |
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law of large numbers |
more data is more credibility |
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utility theory |
purchasers of insurance are risk averse and willing to pay more in prems than expected PV of potential loss for insurance |
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insurance |
a contract an insurance company will pay a person or company a benefit amount to offset an economic loss caused by a specific event |
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legal disputes |
construes in the policyholder’s favor |
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ownership types |
fraternal mutual stock |
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fraternal |
not for profit organization that shares common ethnic, religious or vocational affiliation |
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mutual |
owned entirely by its policyholders members are given the right to select management |
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stock |
owned by its stockholders or shareholders objective is to make a profit for them |
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insurance is regulated at what level |
state |
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considerations of a business |
need to stay between current and indicated what are customers doing have customers been impacted recently is our analysis still appropriate given the pandemic is rating on where an insured lives appropriate |
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actuaries |
design, determine price, file with states, and measures the risk (overhead) |
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marketing |
team markets overhead |
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agents |
sell percent of prem |
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underwriters |
classify risks per application |
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new business staff |
issues policies per sale |
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policy administration staff |
administers contracts per inforce contract |
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claims staff |
pays claims per death |
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investment teams |
invests percent of assets |
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accounting staff |
accounts overhead |
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benefit premium |
amount needed to pay the expected benefits during the life contract |
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expense premium |
amount needed to pay the expected expenses during the life of the contract |
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gross premium |
total amount paid for the insurance |
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anti selection |
occurs when either the buyer or seller has more info about the value of a product or service than the other |
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how to manage the risk of anti selection |
rigorous controls in underwriting process to identify risk factors accurately benefit caps benefit exclusions |
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benefit caps |
limits of face amount per insured person |
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benefit exclusions |
exclude pre existing conditions |
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foundational principals of insurance |
law of large numbers utility theory |
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insurable interest |
exists when an insured person derives a financial or other kind of benefit from the continuous existence, without impairment or damage, of the insured object |
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moral hazard |
the risk the a party has not entered into the contract in good faith, provided misleading info or such in a desperate attempt to earn profit before the contracts settle |
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risks exposed to in a sports bar |
commercial property liability insurance key man insurance buy sell insurance business interruption insurance |
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profit measures |
breakeven year internal rate of return net present value at risk adjusted rate |
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breakeven yr |
represents the payback period for this investment |
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irr |
the interest rate such that the pv of the cash flows (npv) equal 0 |
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net present value |
determine the present value at some interest rate |
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hurdle rate |
capital is needed to absorb losses in yr 1 capital has to earn a return greater than its cost can vary by company size, structure, or risk profile |
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products sold at profit but not earning the hurdle rate are |
destroying economic value |
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the key and the good thing about affordable cate act |
taxpayers are funding prem losses incurring bc only sick ppl are in the pool theyre required to maintain coverage |
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capital analysis |
determine how much money to have on hand |
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reserves, what, why, how |
estimates of future payments life insurance is longterm, defines financial requirements of insurers, and regulated by state for statutory financials pv(benefits)/pv(preniums) |
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how to calculate pv prems and pv benefits |
year 1/(1+i)^0 + year 2/(1+i)^1 year 1/(1+i)^1 + year 2/(1+i)^2 |
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written premium rate |
pricing |
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earned premium rate |
reserves |
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loss reserve |
amount necessary to settle the unpaid claims |
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case reserves |
claim reported but not yet paid |
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factors affecting loss reserves |
society regulation judiciary seasonality residual market inflation economy |
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loss ratio |
total losses/total premiums |
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relative loss ratio |
loss ratio region/loss ratio total |
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credibility weighted loss ratip |
cred*(relative loss ratio)+(1-cred)*1 |
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indicated change |
credibility weighted loss ratio - 1 |
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homogeneity |
events with similar risk should be grouped together to improve accuracy of charging for that rosk |
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what might you do to improve your estimate of p |
take weighted average of your experience combined with industry data take weighted average of your experience combined with population data |
