CPCU 520: Insurance Operations 2nd Edition/Chapter 7: Actuarial Operations

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  1. Data mining
    The process of extracting hidden patterns from data that is used in a wide range of applications for research and fraud detection.
  2. Ratemaking
    The process insurers use to calculate insurance rates, which are a premium component.
  3. Rate
    The price per exposure unit for insurance coverage.
  4. Premium
    The price of the insurance coverage provided for a specified period.
  5. Pure premium
    The average amount of money an insurer must charge per exposure unit in order to be able to cover the total anticipated losses for that line of business.
  6. Expense provision
    The amount that is included in an insurance rate to cover the insurer's expenses and that might include loss adjustment expenses but that excludes investment expenses.
  7. Underwriting expenses
    Costs incurred by an insurer for operations, taxes, fees, and the acquisition of new policies.
  8. Loss adjustment expenses (LAE)
    The expense that an insurer incurs to investigate, defend, and settle claims according to the terms specified in the insurance policy.
  9. Allocated loss adjustment expense (ALAE)
    The expense an insurer incurs to investigate, defend, and settle claims that are associated with a specific claim.
  10. Unallocated loss adjustment expense (ULAE)
    Loss adjustment expense that cannot be readily associated with a specific claim.
  11. Ultimate loss
    The final paid amount for all the losses in an accident year.
  12. Experience period
    The period for which all pertinent statistics are collected and analyzed in the ratemaking process.
  13. Investment income
    Interest, dividends, and net capital gains received by an insurer from the insurer's financial assets minus its investment expenses.
  14. Pure premium method
    A method for calculating insurance rates using estimates of future losses and expenses, including a profit and contingencies factor.
  15. Loss ratio method
    A method for determining insurance rates based on a comparison of actual and expected loss ratios.
  16. Judgment ratemaking method
    A method for determining insurance rates that relies heavily on the experience and knowledge of an actuary or an underwriter who makes little or no use of loss experience data.
  17. Loss cost multiplier
    A factor that provides for differences in expected loss, individual company expenses, underwriting profit and contingencies; when multiplied with a loss cost, it produces a rate.
  18. Calendar-year method
    A method of collecting ratemaking data that estimates both earned premiums and incurred losses by formulas from accounting records.
  19. Policy-year method
    A method of collecting ratemaking data that analyzes all policies issued in a given twelve month period that links all losses, premiums, and exposure units to the policy to which they are related.
  20. Accident-year method
    A method of organizing ratemaking statistics that uses incurred losses for an accident-year, which consist of all losses related to claims arising from accidents that occur during the year, and that estimates earned premiums by formulas from accounting records.
  21. On-level factor
    A factor that is used to adjust historical premiums to the current rate level.
  22. Loss development factor
    An actuarial means for adjusting losses to reflect future growth in claims due to both increases in the incurred amount for reported losses and incurred but not reported (IBNR) losses.
  23. Exponential trending
    A method of loss trending that assumes a fixed percentage increase, or decrease for each time period.
  24. Basic limit
    The minimum amount of coverage for which a policy can be written; usually found in liability lines.
  25. Catastrophe model
    A type of computer program that estimates losses from future potential catastrophic events.
  26. Credibility
    The level of confidence an actuary has in projected losses; increases as the number of exposure units increases.
  27. Credibility factor
    The factor applied in ratemaking to adjust for the predictive value of loss data and is used to minimize the variations in the rates that result from purely chance variations in losses.
  28. Increased limit factor
    A factor applied to the rates for basic limits to arrive at an appropriate rate for higher limits.
  29. Risk charge
    An amount over and above the expected loss component of the premium to compensate the insurer for taking the risk that losses may be higher than expected.
  30. Incurred by not reported (IBNR) reserves
    A reserve established for losses that reasonably can be assumed to have been incurred, but not yet reported.
  31. Actuary
    A person who uses mathematical methods to analyze loss data and develop insurance rates.
Card Set
CPCU 520: Insurance Operations 2nd Edition/Chapter 7: Actuarial Operations
Chapter 7
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