AAA Retained Risk Flashcards
What is retained risk?
Refers to the amount of risk that an entity decides to keep instead of transferring it to an insurance company.
It means that the entity takes financial responsibility for potential losses or liabilities without relying on insurance coverage.
Retained risk can be managed through strategies like self-insurance, reserves, or captive insurance companie
Identify the contexts where a ‘retained risk’ actuarial analysis is generally used. [Hint: AIR]
Adequacy of Accruals for Financial Reporting
Internal Financial Reporting and Cost Allocation
Regulatory Filing for a Qualified Self-Insurance Designation
Adequacy of Accruals for Financial Reporting
Actuaries often receive requests to calculate the projected financial accrual for self-insured or retained liabilities.
The actuarial estimates can be used by company management in 2 ways: [Hint: record & validate]
- to directly record the accrual amount - to validate the reasonableness of management estimates
Identify items included in these accruals for retained liabilities.
provisions for: deductibles
provisions for: self-insured exposure
provisions for: potential retrospective premium amounts
Identify key considerations when comparing an actuarial estimate to a company’s ledger
net or gross of insurance recoverables
discounting
combined accruals that include other insurance-related balances
Combined Accruals Issues
The presence of combined accruals in financial statements can pose challenges when comparing them to actuarial estimates. In some cases, the financial statement accruals may include items like third-party administrator fees that are not accounted for in actuarial calculations. This makes it difficult to directly compare the results of the actuarial analysis with the financial statement entry.
Timing Issues
The key idea is the concept of timing and its impact on the comparison between actuarial estimates and financial statements. The timing differences in payments, billing cycles, and the treatment of prepaid balances or amounts due to third-party administrators and excess insurers are discussed, emphasizing the need for adjustments and documentation to address these timing issues.
What are combined accruals?
financial entries that include multiple related accruals, where only a portion is considered in the actuarial analysis
What challenges can arise when comparing actuarial analysis with financial statement accruals?
financial statement accruals may contain items that are not accounted for in the actuarial calculation
(making direct comparisons difficult)
Example: Third-Party Administrator (TPA) fees
What timing-related issues arise with prepaid balances or amounts due to TPAs and/or excess insurers?
payments made but not yet reimbursed (by company to TPA) result in higher accruals
advance payments lead to lower accruals
How do companies address timing differences in accruals related to TPAs and excess insurers?
adjust accruals
carry a separate timing accrual
treat the timing difference as immaterial
What timing issues can arise with claims paid by the entity but not yet reimbursed by an excess insurance carrier?
when claims are paid but not yet reimbursed by excess insurance carriers
What timing discrepancies can occur with retrospectively rated and large deductible policies?
timing gaps between claim payments and premium payments
What is the general requirement for a company applying for a Qualified Self-Insurance Designation?
an actuarial report and certification along with its application package
Who should provide the actuarial opinion for a self-insured application?
a member in good standing of the Casualty Actuarial Society
