Assignment #2

Question 1

NAIC stands for

Answer 1

National Association of Insurance Companies

Question 2

NAIC Annual Statements include

Answer 2

(1) Balance Sheet
(2) Income Statement
(3) Statement of Cash Flows

Question 3

Types of Assets

Answer 3

Investment Assets – assets that generate income
- Stocks (market value, subsidiary stock can be liquidity risk)
- Bonds (amortized value) – bond quality described in sch D part 1
- Short term investments (anything less than 1 year)

Non-Investment Assets – assets not earning income
- Reinsurance receivables
- Premium receivables

Question 4

Types of Liabilities (3)

Answer 4

Reserves
- Loss & LAE Reserve (largest)
- UEP reserve (second largest, unless quickly growing)

Provision for Reinsurance

Surplus
- Contributed surplus (common stock)
- Treasury stock
- Unassigned surplus

Question 5

Reinsurance assets on insurer BS

Answer 5

Amounts recoverable from reinsurers
- total due from reinsurers, shown in Sch F, Part 3

Receivables from parent, subsidiaries, and affiliates
- If RI relationship exists between subsidiary

Other amounts receivable under RI contract

Question 6

Reinsurance Liabilities on Insurer BS

Answer 6

Funds held by company under RI treaties
- Used to take a credit for premium ceded to unauthorized RI

Ceded reinsurance premium payable

Provision for reinsurance
- Provision for overdue RI or collateral deficiency req

Question 7

Reinsurance Assets on RI BS (2)

Answer 7

Funds held by or deposited with reinsured companies

Uncollected premiums and agent’s balances in course of collection

Question 8

Reinsurance Liabilities on RI BS

Answer 8

Reinsurance payable on paid loss or LAE

Question 9

Income Statement Calculations

Answer 9

UW Gain / Loss = EP - Loss Incurred - LAE Incurred - other UW expenses

+ Net Investment Income / Loss = net investment income + net realized capital gains

+ Other Income = Other income / exp - policyholder dividends

• Federal / Foreign Taxes = Net Income

Question 10

Underwriting and Investment Exhibit Parts

Answer 10

Part 1 – Earned Premium = Net WP + Starting UEP - Ending UEP
Part 1B – Written Premium = D + A - C

Part 2 – Losses Paid and Incurred
Part 2B – Loss Ratio = Incurred Losses + LAE / Earned Premium

Part 3 – Expenses

Question 11

Schedule F & Parts

Answer 11

Provides info on reinsurance and is used to calculate provision for reinsurance

Part 1 – assumed RI
Part 2 – portfolio RI transactions
Part 3 – ceded RI
Part 4 – LOC banks
Part 5 – Largest commission rates & largest RI recoverables
Part 6 – Restated BS

Question 12

Sch F - Part 1

Answer 12

Reinsurance assumed by reinsurer; specifically liabilities and assets

Question 13

Schedule F - Part 2

Answer 13

Shows all ceded and assumed portfolio reinsurance transactions

Involved business already written and losses known & unknown

Loss portfolio transfers are highly scrutinized

Question 14

Schedule F - Part 3

Answer 14

Reinsurance ceded by insurer

Includes things like recoverable, case reserves, IBNR, LAE, UEP, contingent commissions

Question 15

Schedule F - Part 4

Answer 15

Issuing or confirming banks in LOCs

Question 16

Sch F - Part 5

Answer 16

5 largest provisional commission rates
Largest recoverable from single insurerS

Question 17

Sch F - Part 6

Answer 17

Restated BS to show ceded RI; shows effectiveness of the program

Question 18

Schedule P and Parts

Answer 18

Provides info on historical losses and loss expenses

Part 1 – losses and loss expenses (last 10 year)
Part 2 – development of losses and expenses
Part 3 – cumulative net paid losses, D&CC expenses, and # of claims with and without loss payment
Part 4 – bulk and IBNR reserves

Question 19

Sch P - Part 1

Answer 19

History of losses and loss expenses from last 10 years

Includes:
-EP
-Loss and loss payment expenses
-Losses unpaid
-D&CC
-Adjusting expenses
-Total losses & loss expenses incurred

Question 20

Sch P - Part 2

Answer 20

History / development of net losses and D&CC expenses

Positive value shows increase in incurred losses (bad), negative shows decrease in incurred losses (good)

Shows the past 2 years as well in column 11 (past year) and column 12 (past two years)