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Insurance Company: Functions

Insurance Company: Functions. Chapter 7. Insurance related functions. Ratemaking Production Underwriting Loss adjustment Investment Reinsurance Accounting, Compliance. Expense and loss ratios. Expense ratio = underwriting expenses as a percent of premiums

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Insurance Company: Functions

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  1. Insurance Company: Functions Chapter 7

  2. Insurance related functions • Ratemaking • Production • Underwriting • Loss adjustment • Investment • Reinsurance • Accounting, Compliance

  3. Expense and loss ratios • Expense ratio = underwriting expenses as a percent of premiums • 1-expense ratio=permissible loss ratio • Pure premium = expected loss payments • Gross rate = pure premium/(1-expense ratio)

  4. Classification of rating methods • Class • Individual • Judgment • Schedule (blue book approach) • Experience rating • Retrospective rating

  5. Information used in underwriting • The application • External information • Information from broker/agent • Credit reports • Medical exam • Information bureaus • Post selection underwriting • Legal restrictions

  6. Loss Adjustment • Problems in property-liability insurance • Coverage questions • Value of damages • Adjusters • Staff adjuster • Independent adjuster • Public adjuster

  7. Investments • Restrictions in risk taking • Tax considerations • Combined ratio and cash flow underwriting • Conceptual treatment of investment income

  8. Statutory Accounting • More conservative than GAAP • Market value for bonds and stock • Admitted and non-admitted assets • Reserves (liability accounts)

  9. Reserves • Unearned premium reserve • Loss reserves • Incurred but not paid • IBNR • Hidden equity in reserves

  10. Reinsurance • Ceding company and reinsurer • Reinsurance as a “source” of capital • Facultative and automatic • Proportional reinsurance • Quota share (Co-insurance) • Surplus line • Excess loss reinsurance (Deductible) • Pooling

  11. Alternatives to reinsurance • Cat bonds • Catastrophe futures and options • Catex

  12. Taxation • State premium tax • Income tax • Reserving • Tax-exempt bonds

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