SCI BCP – Basic Concepts & Principles In General Insurance Set Two

Please Note! the Minimum Capital Requirement is the minimum level of security below which the amount of financial resources should not fall.

Please Note! The role of the Solvency Capital Requirement (SCR) is to absorb unexpected losses.

Please Note! The automatic treaty is defined as The business/risk reinsured must be ceded by the ceding company in accordance with the contract terms and the reinsurer must accept the business/risk reinsured.

Please Note! Trust is the fourth guide that enables to explain the different clauses found in traditional reinsurance contracts.

Please Note! The Modigliani-Miller is also often called the capital structure irrelevance principle

Please Note! Liquidity cost is not the costs of insurance.

Please Note! Bank loans and liabilities is not covered in ORSA report

Please Note! ORSA can be split into two parts, one is Regular ORSA, on a yearly basis and the other is Project-Based ORSA

Financial risk can be seen in Asset risks (financial risk linked to investment) but also in the liability side (through financial options given to the policyholder, mainly in life insurance).

Insurance risk is a threat that is covered by an insurance policy and can cause financial losses. When the insured event takes place and a claim is filed, the insurance company has to pay the policyholder the agreed reimbursement amount. Insurance risks are not generally classified. However, they can be described by their origin, their magnitude, or their nature.

Please Note! Total Income can’t define economic capital.

If an insurer settles a claim it pays money to a policyholder for the occurrence of a loss or risk against which they were insured. Insurance companies use the premiums they receive not only to settle claims but also to generate additional income and profit by investing their funds in financial securities. When there is disagreement over the claim settlement, Consumers may file a complaint with the state insurance department

A person who compiles and analyses statistics and uses them to calculate insurance risks and premiums is known as an actuary. Social security actuaries make cost estimates over 75- year projection period and even beyond.

An independent Property and Casualty agent is an insurance agent that sells insurance policies provided by several different insurance companies, rather than a single insurance company. An independent agent receives commissions for the policies that he or she sells and is not considered an employee of a specific insurance company.

An insurance claim is a formal request by a policyholder to an insurance company for coverage or compensation for a covered loss or policy event. “The claim may be paid to Government which may decide how and when to pay the claim and at what terms” is not included in the three possible decisions.

Insurance securitization is a financial technique which consists in transferring insurance risks to investors operating on the international financial markets. This transfer is carried out by gathering these risks and turning them into notes on the capital markets. It means that insurable risk is transferred to the capital markets through the creation of a financial instrument, such as a catastrophe bond, futures contract, options contract, or other financial instruments.

Career agents are full-time agents who usually represent one insurer and are paid on a commission basis. These agents are also called affiliated agents because they sell primarily the life insurance products of a single insurer.

Under Multiple Line Exclusive Agency System, The agents who sell primarily property and casualty insurance also sell individual life and health insurance products. These agents are also called captive agents.

Probability is a numerical description of how likely an event is to occur. The formula for probalitiy is result divided by total no of possible outcomes. So in case of dice, probability of getting 6 dots by rolling dice is 1/6.

The expected loss is the probability of no loss plus the probability of loss. So in the above example 90 per cent chances of no loss. So the correct answer is Expected loss = 0.90 X $0 + .10 X $50,000 = $5,000