AICPA Audit and Accounting Guide

Question 1

reciprocal

Answer 1

or interinsurance exchanges are composed of a group of subscribers, who exchange contracts of insurance through the medium of an attorney-in-fact

Question 2

Risk Retention Act of 1986

Answer 2

organized private pools, or risk retention groups. Provide only liability coverage.

Question 3

judgement rating

Answer 3

depends on skill and experience of the rate-maker and, generally, is used for large or unusual risks such as ocean marine insurance

Question 4

Gross premiums written to PHS

Answer 4

ratio measures the adequacy of the ability to absorb above-average losses, net of the effects of premiums ceded to reinsurers. The higher the ratio, the more risk the entity bears in relation to the PHS available to absorb loss variations. Calculated by dividing gross premiums written by PHS. <900%

Question 5

Net premiums written to PHS

Answer 5

ratio measures the adequacy of the ability for absorbing above-average losses. The higher the ratio, the more risk the entity bears in relation to the surplus available to absorb loss variations. Calculated by diving net premiums written to PHS. <300%

Question 6

Surplus aid to PHS

Answer 6

<15%

Question 7

Two-year overall operating ratio

Answer 7

a measure of the operating profitability of an insurance entity. The profitability of the business is a principal determinant of the entity’s financial solidity and solvency. <100%

Question 8

Investment yield

Answer 8

provides an indication of the general quality of the entity’s investment portfolio. Range 3% to 6%

Question 9

One year reserve development to PHS

Answer 9

measures the accuracy with which reserves were established 1 yr. ago. <20%

Question 10

Two-year reserve development to PHS

Answer 10

sum of the current reserve for losses incurred more than 2 yrs. prior, plus payments on those losses during the past 2 yrs. minus the reserves that had been established for those losses 2 yrs. earlier. <20%

Question 11

Real estate held for sale

Answer 11

Reported at lower of depreciated cost or fair value less encumbrances and estimated costs to sell the property

Question 12

Account current item basis

Answer 12

For individual policies, the agent collects the premiums directly from the insureds, subtracts his or her commissions, and remits the net premiums due the entity. If the agent cannot collect a premium during the credit period allowed by the entity, he or she may request cancellation of the policy.

Question 13

Account current rendering basis

Answer 13

The agent submits a statement of all the policies issued or due during the current month to the insurance entity and the net amount of the statement is subsequently to be paid in accordance with the agency agreement.

Question 14

Account current billing basis

Answer 14

The entity send the agent a statement that contains a listing of all the policies written or due minus the policies cancelled during the month. The net amount of the statement is to be paid in accordance with the agency agreements.

Question 15

Excess of loss per risk reinsurance

Answer 15

requires the insurer to retain all claims up to a stated amount or retention on each risk covered under the reinsurance, such as all fire policies written.

Question 16

Excess of loss per reinsurance

Answer 16

requires the insurer to retain all claims up to a stated amount or retention on all losses arising from a single occurrence. aka catastrophe reinsurance

Question 17

facultative reinsurance

Answer 17

each risk or portion or risk is reinsured individually, and the reinsurer has the option to accept or reject each risk

Question 18

Federal Liability Risk Retention Act of 1986

Answer 18

Risk retention groups are permitted to write any form of commercial liability coverage, such as general liability, errors and omissions, directors and officers, medical malpractice, professional liability, and product liability.