NON LIFE BUSINESS AND INFLATION

Abstract

This chapter discusses nonlife business and inflation. In insurance, business it is of vital importance for the calculation of present values. The premium is the present value of future claim payments and costs of administration. The reserve for outstanding claims is the present value of future payments upon claims already incurred but still not settled. The premium reserve, often known as the unearned premiums, is in practice calculated from the premiums earned on a pro rata temporis basis but is in fact the present value of expected costs for future claims upon insurance contracts in force at the time of the valuation. As a present value has to do with the future and nobody knows about the future, assumptions have to be made. These assumptions are often known as the technical base and consist of assumptions regarding claim frequency, mean claim amount, mean duration from occurrence of claim until final settlement of claim, costs of administration, interest, and inflation.