Insurance Accounting Flashcards
Net Premium
Direct - Ceded + Assumed
Earned Premium
Beginning UEP + Written Premium - Ending UEP
Incurred Losses
Paid Losses + Ending O/S - Beginning O/S
In Force Premium
Total annualized premium for all policies that have not yet expired
Assumptions behind monthly UEP method
(1) assumes level writing
(2) assumes 15th day of month effective inception date
(3) assumes policies written on annual basis (otherwise change denominator)
UEP calculation methods
(1) Traditional (uses in force)
(2) daily (most accurate)
(3) monthly pro rata (best estimation)
(4) annual pro rata (easiest estimation)
B/S Equation
Assets = Liabilities + PHS
NI Equation and Steps
NI = EP - IL - AC - UW Expense
STAT to GAAP AC
GAAP AC = DAC beginning + STAT AC - DAC ending
Cash
Cash beginning + WP - Paid Losses - AC - UW expenses
DAC
AC % x UEP
AC % = acquisition costs / WP
IBNR valuation methods
(1) Expected dollar value – estimate UNL (ultimate net loss) and subtract paid losses and existing case reserves
(2) Counts + Avg Costs – estimate # of claims and multiply by average cost per claim
(3) Special Situations – specific to LOBs
Categories of LAE
Historically (1) allocated and (2) unallocated; now (1) Defense and Cost Containment and (2) Other Adjusting Expenses
Key Points of GAAP
(1) Going Concern
(2) Matching of Revenues and Expenses
(3) Governed by SEC / FASBK
Key Points of STAT
(1) Liquidation Basis
(2) Required by state regulators
(3) Non-admitted assets (furniture, equipment, prepaid expenses, DAC)
(3) Some reserves as liabilities (unauthorized reinsurance)
