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Exam 6 > Additional > Flashcards

Additional Flashcards

1
Q

Additional strength of the Us regulatory system

A

formulaic standards such as IRIS tests and RBC may reduce forbearance since they have required action levels

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2
Q

RBC vs Rating Agency capital requirements

A

RBC does not consider reserve adequacy
RBC can trigger regulatory intervention, whereas financial rating cannot
Rating agency capital requirements are very tailored to the individual insurer being evaluated

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3
Q

Risk Management Agency (RMA)

A
  • created by USDA to operate and manage federal crop insurance corp (FCIC)
  • assesses how crop coverage is performing and whether any changes need to be made. Help monitor and control risks
  • RMA will aggregate all data available to be able to price accurately
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4
Q

DIC policy

A

a policy that covers on “all risks” basis to fill gaps in the insured’s underlying property coverage

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5
Q

AOS is used by

A

regulator and board of directors

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6
Q

Why should commutation agreements be disclosed

A

because some exhibits will be distorted by a commutation

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7
Q

Insurance Advisory Organization purposes

A
  • providing prospective loss costs used in rate filings
  • developing rating systems
  • lobbying
  • collecting and tabulating statistics
  • filing support
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8
Q

Goal of the “unfair” act

A

to identify methods of unfair competition or trade practices in state laws to reduce the amount of federal intervention

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9
Q

limitations of schedule P to assess reserve adequacy:

A
  • judgements/selections involved in how it is assembled
  • segmentation may be different than what is necessary
  • commutations can distort triangles
  • net of reinsurance: may be difficult to see impacts of various agreements
  • only shows 10 years worth of data: not good for long tail
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10
Q

Bright Line Indicator test

A

if 10% of loss and lae reserves is greater than the difference between adjusted surplus and company action level capital and surplus, regulators will need an explanation of why the actuary doesn’t think there exists MAD

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11
Q

currency risk is NOT

A

an aspect of insurance risk

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12
Q

sections of 5 yr historical data exhibit

A 
WP (by 5 LOBs)
Balance sheet
RBC components
Operating Percentages (loss, lae, und exp, profit ratios)
One and two year loss development
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13
Q

Unrealized capital gains cause

A

DTA/DTL

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14
Q

negative income will

A

erode surplus

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15
Q

What is updated retroactively for pooling % changes?

A

Schedule P, but not Schedule F

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16
Q

long tail lines should maintain lower

A

IRIS 1 and 2 ratios

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17
Q

Net DTA is an

A

admitted asset

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18
Q

fair value discount rate

A

risk free rate + illiquidity premium

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19
Q

far value risk cost of capital

A

cost of capital - discount rate

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20
Q

AOS does not discuss

A

RMAD

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21
Q

Revenue offset

A

adds back into income those prepaid acquisition expenses which have not yet been earned buy were expensed

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22
Q

Reserve discounting adjustment (fair value)

A

needed because tax accounting calculates income using discounted reserves, when statutory accounting uses undiscounted reserves

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23
Q

Business of Insurance definition is based on

A

Royal Drug case of 1979

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24
Q

Duties of regulators

A 
license insurers
financial reporting
review of insurers
periodic examinations
impose sanctinos
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25
Q

Equity in UEPR

A

UEPR * prepaid acquisition cost %

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26
Q

Equity in Undiscounted Reserve

A

Undiscounted Reserve * (1- disc factor)`

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27
Q

An omission, understatement, or overstatement in a work product is material if

A

it is likely to affect the intended user’s decision making process or reasonable expectation

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28
Q

In a commutation, surplus for the primary insurer will decrease if

A

the price is less than the ceded reserves

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29
Q

IMF FSAP

A

financial sector assessments programs is an international in-depth look at regulation, especially on group community

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30
Q

An improvement to schedule F from the regulator’s perspective

A

to show the reinsurance company’s agency rating. this would help regulators better understand any insolvency concerns with the reinsurer or potential uncollectibility issues

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31
Q

increased risk increases

A

surplus

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32
Q

RBC requirements attempt to

A

individualize minimum capital requirements for each insurer

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33
Q

RBC does not take into account

A

rate or reserve adequacy

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34
Q

In 2 year operating ratio, subtract this out from the expense ratio

A

other income

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35
Q

Reasons for codification of SAP

A
  • allow regulators and NAIC to aggregate financial information more easily
  • financial information is comparable between companies
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36
Q

ceding insurers CANNOT take credit for recoverables in dispute with

A

an affiliate

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37
Q

tabular discount is for

A

specific claims. does not apply to LAE

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38
Q

required table in notes for asbestos is repeated 3 times for

A

direct, assumed, net

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39
Q

How to adjust for surplus aid

A

multiply PHS by (1-surplus aid ratio)

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40
Q

data testing auditor should be retained by

A

the insurance company

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41
Q

schedule P reconciliation is by

A

AY and LOB

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42
Q

realized capital gains are NOT

A

an asset

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43
Q

commutation price increases the primary insurer’s

A

ceded paid loss

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44
Q

Sherman Antitrust Act prompted

A

some states to pass similar laws

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45
Q

gross agents’ balances are analyzed in IRIS because

A

they usually cannot be converted to cash in the event of liquidiation

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46
Q

loss sensitive discount is calculated using

A

base RBC

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47
Q

what premium to use to measure excessive prem growth

A

direct and assumed from non-affiliates

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48
Q

excessive premium growth is added when

A

after loss concentration factor

49
Q

most common coverage insured by RRGs

A

medical malpractice

less avialable, higher premiums, opportunities for diversification of policy terms

50
Q

Surety Description

A
  • insurance provides security to a 3rd party
  • ensures construction firm will complete project
  • principles may require construction firms obtain surety contracts from A rated insurers
51
Q

why are guaranty funds more efficient for the economy/society

A

insureds do not need to put away resources to pay for claims in the event that an insurer is unable to pay

52
Q

realized capital gains are NOT included in the

A

II ratio

53
Q

If IRIS ratio 11 is unusual,

A

develoment needs to be subtracted from ratio 5 (operating)

54
Q

investment gain ratio

A

use 1 company ratio for all LOBs

55
Q

unsecured recoverables cannot be

A

negative

56
Q

triangles in parts 2-4 of schedule P do not include

A

A&O

57
Q

can break down part c of AOS into

A

total carried
excluded by opinion
covered by opinion

58
Q

2 times when GAAP is more conservative

A

retroactive reinsurance: surplus benefit is deferred

structured settlement: SAP allows for claims to still be closed if release of liability is not signed. GAAP treats it like reinsurance contract

59
Q

GLB

A

Graham Leach Bliley Act

60
Q

GLB act addressed

A

issue of state vs federal regulation

61
Q

GLB prohibits state actions that

A

would prevent bank-related firms from selling insurance on same basis as insurance producers

62
Q

GLB prohibits national banks from

A

forming subsidiaries to underwrite insurance. however, can arrange financial holding companies to create insurance affiliates

63
Q

GLB promotes information sharing among banks and insurance affiliaites by

A

requiring banks to disclose information sharing policies and practices

64
Q

NAIC producer licensing model act (result of GLB)

A

compels states to facilitate insurance producers’ ability to operate in more than 1 state

65
Q

deviations under traditional ratemaking are usually applied at class level,

A

but deviations under price optimization can be applied at policy level

66
Q

Schedule P is presented __ of paid S&S and possibly unpaid S&S

A

net

67
Q

Dividends to policyhohlders need to be added to

A

LR

68
Q

audit responsibilities

A

report any deficiencies of internal controls

69
Q

difficulties in reconciling to schedule P

A

different accounting for S&S
only contains 10 year of data
differnet breakouts for states

70
Q

example of NAIC protecting public interest

A

prepares special reports on insurance issues such as redlining and auto competition

71
Q

example of NAIC promoting competitive markets

A

model laws, regulators, and guidelines provide uniformity and reduce compliance expenses

72
Q

example of NAIC promoting fair and equitable treatment of consumers

A

complaints database system

73
Q

example of NAIC promoting solvency

A

databases to help regulators track solvency

74
Q

example of NAIC supporting and improving state regulation

A

accreditation program

75
Q

agents’ balances are subtracted from investable funds because

A

the insurer does not possess the money and therefore cannot invest it

76
Q

apply the long duration UEPR tests how

A

annual basis for 3 recent years and aggregate for prior

77
Q

if price optimization can be proven to be nondiscriminatory

A

it could have differentiation, which would provide more accurate rates reflecting true cost of risk transfer

78
Q

reinsurers with higher financial ratings may be able to

A

charge more premium to primary insurer

79
Q

most reinsurers are not in the US, so

A

ratings can provide an idea of financial strength

80
Q

exclusive WC state funds are a monopoly, which

A

limits compeition

81
Q

include cpaital gains tax in

A

net income

82
Q

SAP recognizes acquisition costs immediately, but

A

GAAP defers to match earning of premium

83
Q

if actuary only gives a range and no point estimate, the AOS

A

will have N/A in the point estimatie row

84
Q

scope: filing is with

A

the state DOI

85
Q

Scope: provider of data should be

A

a company officer

86
Q

amount of reinsurance recoverables on paid losses is not

A

on the SAO or AOS

87
Q

policyholder surplus can be found

A

in exhibit B of the SOA

88
Q

NO class 1 bonds are included in

A

asset concentration

89
Q

only non government class 1 bonds are included in

A

bond size factor

90
Q

items in numerator for 2 year expense ratio

A

uw exp + write ins - other income

91
Q

items in numerators for 2 year loss ratio

A

losses and lae + policyholder dividends

92
Q

r0 components

A

directly owned alien affiliates
off-balance sheet items
investments in insurance subsidiaries

93
Q

r1 components

A 
bonds (bond size adj)
mortgage loans
LIHTC
miscellaenous assets (cash and admitted coll loans)
working capital finance
asset concentration
94
Q

r2 components

A 
stocks
parent/holding company
non gov money market
real estate
other long term investments
receivables for securities
agg write ins for isnurance
asset concentration
95
Q

r3 components

A

reinsurance recoverable (1/2)
health credit
non-invested assets

96
Q

Risk retention act of 1981

A

enabled companies to form their own risk retention groups to spread and assume their products and completed operations exposure

97
Q

risk retention act permitted groups lincesed in one state

A

to be permitted to operate in any other

98
Q

terrorism insurable risks criteria met

A

losses definite and measurable

losses not catastrophic (geographically)

99
Q

terrorism insrable risks criteria unmet

A

sufficiently large number of insures to make losses reasonably predictable

losses must be fortuitous or accidental

100
Q

total recoverables from a resinrer also include

A

UEPR associated with ceded premium and contingent commissions owed by reinsurer

101
Q

disadvantage of profit in IEE

A

relies on allocating surplus to line, which is an artificial allocation

102
Q

surveillance expenses are

A

DCC

103
Q

3 types of discount rates the actuary could consider using

A

risk free rate
anticipated return on a selected asset portfolio
discount rate requested by another party

104
Q

subtract beat payments when

A

calculating regular taxable income

105
Q

BEAT tax is currently

A

10% UNTIL 2025

106
Q

purpose of BEAT tax

A

to prevent insurers from avoiding US tax by transferring earnings to a related foreign entity

107
Q

credit risk should not be

A

included in risk transfer

108
Q

gain/loss for commutations is

A

underwriting income

109
Q

what is recorded is deposit accounting total losses are valued upwards

A

interest expense

110
Q

recoverables in accounting treatment of retroactive reinsurance

A

contra liability

111
Q

consideration paid for retroactive reinsurance

A

reduces asses

112
Q

payment in run-off accounting

A

paid loss

113
Q

if the payment is less than the reserves transferred in a runoff agreement

A

decrease in incurred losses

114
Q

example of NAIC protecting public interest

A

prepares special reports on insurance issues such as redlining and auto competition

115
Q

example of NAIC promoting competitive markets

A

model laws, regulations, and guidelines promote uniformity and reduce compliance expenses

116
Q

example of NAIC facilitating fair and equitable treatment of insurance consumers

A

keeps compliant database system which contains info about complaints made against insurers on a state or national basis

117
Q

example of NAIC promoting the reliability, solvency, and financial solidity of insurance institutions

A

maintain computerized databases to help regulators track insurers’ financial solvency

118
Q

example of NAIC supporting and improving state regulation of insurance

A

accreditation program to promote consistent, effective regulation across all states

119
Q

Most frequent contributors to insurer insolvency

A 
Rapid premium growth
Inadequate rates/reserves
Unusual expenses
Lax controls over agents
Uncollectable Reinsurance
Fraud

Exam 6 (8 decks)

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