Actuarial processes and accounting

Question 1

Actuarial role and purpose

Answer 1

Ultimate value of losses incurred but not reported(IBNR)
Predictive modeling
Contribute in designing new insurance products
Cat management
Loss projections
Reserving- forecasting ultimate losses
Ratemaking- rates and regulation/avoid adverse selection

Question 2

Case Reserves

Answer 2

Claim reserve- The amount adjuster placed on a claim that has not yet been paid

Question 3

IBNR- incurred but not reported

Answer 3

Liability for an unpaid claim not reflected in the case reserve estimate for an individual loss

Question 4

Pure IBNR

Answer 4

Incurred but not reported as of the evaluation date. No basis for establishing a reserve

Question 5

Board or Bulk IBNR

Answer 5

Additional development on known claims or an increase in reserves as the claim is investigated

Question 6

Ultimate losses

Answer 6

Total amount paid after claim is settled

IBNR + Case Reserves + Paid Losses

Question 7

Incurred losses

Answer 7

Total amount of claim and reserves during a particular period of time
Incurred Losses= Plaid Claims + Reserve

Question 8

Loss Reserves

Answer 8

Estimation of liability for unpaid claims

Loss Reserves= IBNR + Case Reserves

Question 9

Allocated loss adjustment expense

Answer 9

Other expenses of a claim such as outside legal counsel

Question 10

Unallocated loss adjustment expenses

Answer 10

Salary, overhead or other related adjustment expenses

Question 11

Loss triangles

Answer 11

Determines loss development for a group of risks
Takes loss info and shows a roadmap of how it got there in equal slices of time
Types: Paid loss (severity), incurred loss (severity), claims count (frequency), claim pay out (timing)

Question 12

Loss development factors

Answer 12

Obtained through actuarial consultants, industry experience or insurance company financial statements.
apply to current valuation of losses to determine an estimate of ultimate losses

Question 13

Case reserve processes

Answer 13

Stair-stepping- adjuster changes values with additional information
Bulk reserving- Added to a group of claims that close quickly(less than 30 days)
Factor reserves- placed on individual claims where the reserve is the same for similar claims

Question 14

Insurance decisions affected by reserves

Answer 14

Insurance pricing, safety programs, merger and acquisition negotiations, financial reporting

Question 15

Statutory Accounting- STAT

Answer 15

Financial reporting mandated by the state. Very conservative. Emphasizes liquidity and solvency.
Income recorded over policy term
Expenses recorded when incurred
Intangible and non liquid assets are not recognized
Retained earnings recorded as policyholder surplus

Question 16

GAAP- generally accepted accounting principles

Answer 16

More conventional accounting. Ok to Mutual Companies. 
Income recorded at time of sale
Expenses recorded over policy term
Assets in balance sheet
Retained earnings are stockholder equity

Question 17

SEC regulation

Answer 17

Protects client
Publicly held companies subject to SEC regulation
Mutuals not subject to

Question 18

Profitability ratios

Answer 18

Basic equations used to monitor and evaluate insurance operations
Cost + Profit = Price

Question 19

Underwriting expense ratio

Answer 19

Measures how much premium dollar is used to pay for company operating expenses

Question 20

Combined ratio

Answer 20

Measure of profitability of a book of business
Losses + LAE + UWExpenses /Earned Premium = Combined Ratio
Combined ratio exceeding one or 100 indicates losses