Drawing Upon the Lessons Learned from the Collapse of HIH

question 10

Essay

Drawing upon the lessons learned from the collapse of HIH, how should general insurers manage their ability to meet their contingent liabilities?

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Definitions:

Absorption Costing

A cost accounting method that includes all manufacturing costs (direct materials, direct labor, and both variable and fixed manufacturing overhead) in the cost of a product.

Profit

The financial gain achieved when the revenue from business activities exceeds the expenses, costs, and taxes involved in maintaining the operation.

Standard Costs

Predetermined costs for products or services, used as benchmarks for evaluating actual performance and cost control.

Step-Down Method

An allocation method used in cost accounting to assign costs in a hierarchical manner, from the highest level down to the lowest.