Measurement Tools Flashcards
1
Q
limitations of financial health measurement tools (3)
A
- should be used in tandem over multiple years
- should not replace audits
- do not guarantee input data is accurate
2
Q
perspectives of financial health provided by financial statements (2)
A
- balance sheet strength
* earnings potential
3
Q
annual statement exhibits regulators can use to evaluate balance sheet strength (4)
A
- five-year historical exhibit
- notes to financial statements
- Schedule P
- Schedule F
4
Q
another line item from the balance sheet to investigate if loss and LAE ratio is well over 100%
A
- UEPR
5
Q
findings from 2010 AAA report related to insurance company insolvencies (3)
A
- under-reserving is not the leading cause of insolvency
- size, experience, and diversification are important
- good management and governance are key
6
Q
evaluations of earnings potential from financial statements (6)
A
- large growth in written premium is concerning in a soft market
- increases in underwriting expense ratios may be a sign that an insurer is conceding commission
- deteriorating loss ratios implies pricing is inadequate
- increased exposure to catastrophes is concerning
- poor investment performance may suggest a change in investment strategy
- increases in the provision for reinsurance may suggest an increase in credit risk
7
Q
possible regulatory triggers from SAO (2)
A
- issued opinion other than “reasonable”
* comments indicating material risk of adverse deviation
8
Q
qualitative factors considered in financial strength ratings (5)
A
- corporate governance
- product development
- asset quality
- reserve adequacy
- claims management
9
Q
users of financial strength ratings
A
- policyholders - consider when purchasing insurance
- board of directors of corporate policyholders - may require use of highly rated insurers
- insurers - look at a reinsurer’s FSR
- investors - may use FSR to decide whether to invest in the insurer
