Unit_5Financial_Operations_of_Insurance_Companies_Students_Notes

Unit_5Financial_Operations_of_Insurance_Companies_Students_Notes

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UNIVERSITY OF TECHNOLOGY, JAMAICA FACULTY OF BUSINESS AND MANAGEMENT SCHOOL OF BUSINESS ADMINISTRATION INSURANCE UNIT 5 - Financial Operations of Insurance Companies OBJECTIVES Understand the major sections of the balance sheet for a property and liability insurance company: assets, liability, and policyholders’ surplus. Identify the sources of revenues and types of expenses incurred by a property liability insurance company. Explain how profitability is measured in the property and liability insurance industry. Understand the balance sheet and income and expense statement of a life insurance company, and explain how profitability is measured in the life insurance industry Explain the objectives of rate-making in the property and liability insurance industry and discuss the basic rate-making methods, including judgment rating, class rating and merit rating. Explain the defects in the traditional net cost method for determining the cost of life insurance. Explain the interest-adjusted surrender cost index and net payment cost for determining the cost of life insurance Explain the yearly rate-of-return method for determining the annual rate of return on the saving component in a life insurance policy. Understand how life insurance premiums are calculated. Financial Statements of Property and Casualty Insurers Balance Sheet: A summary of what a company owns (assets) and what it owes (liabilities) o Total Assets = Total Liabilities + Owners’ Equity Financial Statements of Property and Casualty Insurers The primary assets for an insurance company are financial assets Insurers’ liabilities include required reserves A loss reserve is an estimated amount for: Claims reported and adjusted, but not yet paid Claims reported and filed, but not yet adjusted
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Claims incurred but not yet reported to the company Financial Statements of Property and Casualty Insurers Case reserves are loss reserves that are established for each individual claim o Methods for determining case reserves include: The judgment method: a claim reserve is established for each individual claim The average value method: an average value is assigned to each claim The tabular method: loss reserves are determined for certain claims for which the amounts paid depend on data derived from mortality, morbidity, and remarriage tables The loss ratio method establishes aggregate loss reserves for a specific coverage line o A formula based on the expected loss ratio is used to estimate the loss reserve o The incurred-but-not-reported (IBNR) reserve is a reserve that must be established for claims that have already occurred but that have not yet been reported The unearned premium reserve is a liability item that represents the unearned portion of gross premiums on all outstanding policies at the time of valuation o Its purpose is to pay for losses that occur during the policy period o It is also needed so that refunds can be paid to policyholders that cancel their
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This note was uploaded on 02/26/2012 for the course ECON 101 taught by Professor Adam during the Three '11 term at University of Technology, Sydney.

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Unit_5Financial_Operations_of_Insurance_Companies_Students_Notes

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