Lecture 5 Quiz

Technical provision preserves capital to cover payments for claims that have occurred, as well as payments for future claims from already written policies.

Technical provision is also knowned as reserve in Australia and can be located in Equity section of the balance sheet.

Technical provision is estimated conservatively to provide a low insolvency risk.

Technical provision is the sum of net outstanding claims liability and net unearned premium

Outstanding claims liability can be found by adding up the ultimate claims liabiity for all accident years and subtract the total claims payments that have been made to date

Outstanding claims liability will increase if the ultimate claims liability in one of the prior accident years is revised upwards

Outstanding claims liability at the beginning of a period is always lower than outstanding claims liability at the end of the period.

Outstanding claims liability is the estimate of claims payments in future years from claims that have occurred.

A reinsurer who assumes risk from an insurer is known as the cedant or ceding company.

Outward reinsurance refers to the reinsurance service that an insurer obtains from a reinsurer

Inward reinsurance refers to the reinsurance service that an insurer provides to another insurer

Recovery refers to claims payments provided by a reinsurer to indemnify losses from insurance claims

Reinsurance and other recoveries on outstanding claims is an asset item in the balance sheet

Deferred reinsurance premium is a prepaid asset

Deferred insurance cost is an item in income statement

Outstanding claims is a liability item in the balance sheet

When the insurer does not buy or sell reinsurance, gross claims expense is the same as net claims expense

Facultative reinsurance is a reinsurance contract that is established under a case by case basis. The risk of an insurance policy is ceded to the reinsurer under facultative reinsurance only if there is a facultative reinsurance contract signed for that insurance policy.

Reinsurance treaty provides an automatic reinsurance coverage for the insurer. If an insurance policy satisfies the terms of the treaty, the risk of that policy will be automatically ceded to the reinsurer

Reinsurance treaty is often used for large and unusual risks.