Every answer and its explanation appears here once you have finished the path. Each one then links to the matching glossary entry, where the concept is set out in full with its worked example.
1. An insurer reports a combined ratio of 97%. What does that mean?
It earns 3 cents of technical margin per euro of premium
The combined ratio adds losses and expenses over earned premiums. Below 100, underwriting is profitable before investment income. Above, it is not, and only investments can make up the difference.
Glossary entry →2. What does the incurred but not reported reserve cover?
Claims already incurred that the insurer does not yet know about
The event occurred during the year, but notification comes later, sometimes years later in liability. Understating IBNR flatters the current year at the expense of later ones: that is how a good number hides a bad year.
Glossary entry →3. What is a loss triangle used for?
To observe how one accident year's cost develops over time
Each row is an accident year, each column a development year. By reading how past years developed, one projects those not yet settled. The whole method rests on a strong assumption: that the past behaves like the future.
Glossary entry →4. What does the chain ladder method rest on?
On development factors estimated from observed development
Chain ladder extrapolates observed patterns, which makes it fragile on a recent year where few claims have emerged: one large file distorts the factor. That is the reason Bornhuetter-Ferguson exists, weighting observation against an a priori.
Glossary entry →5. What does Bornhuetter-Ferguson correct relative to chain ladder?
Estimation instability on immature accident years
It blends observation with an a priori loss ratio, weighted so that observation grows as the year matures. On a young year the a priori dominates; on a mature year it converges to chain ladder. It is a transition, not a rival method.
Glossary entry →6. An annual policy of 1,200 is written on October 1. What premium is earned as of December 31?
300
Three months of twelve have run, so a quarter of the premium is earned. The remaining 900 are written but unearned, and sit in the unearned premium reserve. Comparing losses to written rather than earned premium distorts every ratio on a growing book.
Glossary entry →7. Why can claims inflation exceed general price inflation?
Because claims cost components follow their own dynamics
Construction costs, spare parts, medical fees and legal costs do not track the general index. In liability, add the drift of court awards, known as social inflation, which affects losses incurred years earlier.
Glossary entry →8. Two insurers show the same loss ratio but different combined ratios. Where does the gap come from?
From their expenses, acquisition and administration
The combined ratio is the sum of the loss ratio and the expense ratio. At equal loss ratios, the whole gap comes from expenses: distribution commissions, administration, IT. That is where profitability is decided in low-margin lines.
Glossary entry →