Lecture 5 Quiz

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

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 the sum of net outstanding claims liability and net unearned premium

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

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

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

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

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

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

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

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

Deferred reinsurance premium is a prepaid asset

Deferred insurance cost is an item in income statement

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

Outstanding claims is a liability item in the balance sheet

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.

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

Reinsurance treaty is often used for large and unusual risks.

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