Miscellaneous

Question 1

Identify a place on Statutory Annual Statement for uncollectible reinsurance

Answer 1

There is no uncollectible reinsurance on AS

Question 2

Identify a place on Statutory Annual Statement for provision for reinsurance

Answer 2

Liabilities of Balance Sheet and Sch. F part 3

Question 3

How are Salvage & Subrogation treated in Schedule P part 1?

Answer 3

paid losses are always net of S&S; unpaid losses may be recorded net or gross of anticipated S&S

Question 4

Earned Premium formula

Answer 4

Written Premium - Change in Unearned Premium

Question 5

Paid-in capital

Answer 5

Paid-in capital (or contributed capital) is that section of stockholders’ equity that reports the amount a corporation received when it issued its shares of stock.

Question 6

Describe how Schedule F reflects uncollectible reinsurance

Answer 6

Sch. F uses a formula to develop the provision for reinsurance, which is a prospective measure of uncollectible reinsurance

Question 7

how to allocate PHS for LOB when calculating investment gain allocated to LOB

Answer 7

% of (Curr Yr EP + Mean L&LAE reserve + Mean UEPR) of each line to total * annual average PHS

Question 8

IEE: Total investable asset formula

Answer 8

Total Investable Asset = Mean L&LAE Reserve + Mean UEPR + Mean Reinsurance Payable - Mean Agent’s Balances + Mean PHS

Question 9

Justify a method for allocating surplus that addresses how IEE allocates it.

Answer 9

1. allocate surplus based on internal model
2. allow the company to judgmentally allocate any additional surplus that is deemed appropriate after the formulaic value
3. Use prospective pricing models to assess riskiness
   & cost of capital. This better reflects risk than just using premium & reserves

Question 10

Required method recording WP and one exception

Answer 10

WP should be recorded on the effective date of the policy. Except, Worker’s Comp, where the premium is billed at the time of installment payments

Question 11

Joint and Several Liability

Answer 11

joint and several liability则为“连带负债”，指债权人可就两个以上债务人所欠的债务同时对所有债务人提起诉讼，也可单独就其中某一债务人提起而要求他（她）归还所有其他人所欠债务，一旦归还，其他债务人也就免去自己的债务

Question 12

For RBC- R4 Reserve risk, how’s the loss and LAE reserve discounted?

Answer 12

Just as Sch. P part 1, net of tabular, gross of non-tabular

Question 13

For RBC- R4 Reserve risk, when should not the company adjustment be made?

Answer 13

1. either the initial or current loss values are negative for any years
2. current value is 0 for any year in the past 10 years (aka. have to have at least 10 years loss&lae data to be qualified)
3. sum of initial values is 0 across all years

Question 14

What the R4 - reserving risk charge is designed to measure?

Answer 14

it’s designed to measure the susceptibility to adverse development

Question 15

Adverse loss development

Answer 15

Increase in loss reserves. For example, last year’s loss reserve was 10,000. with an adverse loss development of 1,000, this year’s loss reserve will be 11,000

Question 16

Premium Deficiency Reserve

Answer 16

Disclose in Financial Statement the size of the deficiency and whether investment income was considered

Question 17

Briefly describe MMSEA 2007

Answer 17

Claimant must submit claim details to CMS, and insurer need to verify that the claim was Medicare eligible

Question 18

True or False: a company must be declared insolvent before the guaranty fund may have any involvement?

Answer 18

False

Question 19

True or False: A majority of the states use a pre-fund assessment

Answer 19

False

Question 20

True or False: The law gives guaranty funds priority treatment in recovering their costs from the insolvent insurer

Answer 20

TRUE

Question 21

Balance Sheet is on a Net basis?

Answer 21

True

Question 22

Describe the objectives and focus of SAP and GAAP

Answer 22

SAP is used for regulators, it’s based on the liquidity and focus on Balance sheet. GAAP’s intend users are investors, it’s on-going concern and focus on income statement.

Question 23

Amortized Cost vs. Fair Value

Answer 23

Amortized cost is based on the book value on the balance sheet. Fair value equals the remaining cash flows discounted at current market interest rates.

Question 24

Materiality

Answer 24

A material item is one that is large enough that the users of the information will be influenced by it.

Question 25

(less testable) sources for preparing and issuing statutory financial statements for insurance companies in the US and guidance if resources are not available

Answer 25

two resources: SSAP, NAIC’s APPM
if not available: SSAP, Emerging Accounting Issues Working Group, NAIC AS Instructions, Certain GAAP publications (in that order)

Question 26

One way to critique a potential materiality standard

Answer 26

Materiality standard varies by task.
Eg: we may have the same reserving or pricing standards across LOBs, yet we def. won’t have the same standard to set pricing and reserving for even the same LOB

Question 27

Examples for Discounting Rate (ASOP 20)

Answer 27

1. Risk Free: use a rate close to risk free rate (i.e. low investment risk and similar timing)
2. Portfolio: anticipated return on a selected asset portfolio
3. Discount rates requested by another party

Question 28

Briefly describe the relationship of insurance commissioners to the NAIC

Answer 28

Commissioners are members of NAIC (National Association of Insurance Commissioners)

Question 29

Define “Price Elasticity of Demand”

Answer 29

Change in consumption of a product related to change in price. Consumers with lower price elasticity are likely to stick around even with larger fluctuation in prices

Question 30

Define Captives

Answer 30

Self-insurance. Parent company creates a company only to provide insurance coverage for itself. Group captive is owned by a group of companies (usually in similar business).
Captives needs a fronting paper from parent company in its rate filing and AS.

Question 31

Captives vs RRG

Answer 31

https://lpinsurance.com/blog/risk-retention-or-captive/

Question 32

Surety

Answer 32

A surety company focuses on helping contractors and other business owners get bonded.

Question 33

How GAAP vs. SAP treats reinsurance?

Answer 33

[this means unauthorized reinsurance sometimes]. SAP has provision for reinsurance to measure the recoverable that may not be collectible. GAAP relies on management estimates.

Question 34

define Unauthorized reinsurance

Answer 34

reinsurance purchased from a provider that is not licensed in the insurer’s state of domicile

Question 35

Goodwill

Answer 35

(Asset) .the difference between the purchase price of a company and its book value

Question 36

Defined Tax Proration

Answer 36

25% tax-exempt income need to keep for tax accounting

Question 37

Special Surplus

Answer 37

A part of surplus, although not recognized as Unassigned Funds (used for stock div distribution). Major representative: retroactive reinsurance gain (when consideration paid < reserve ceded). This is the few places where SAP is less conservative than GAAP as it still recognizes this gain as a part of Surplus.

Question 38

2 types of reinsurance contracts that may cover liabilities that occurred prior to the effective date of the contract, but are accounted for as prospective reinsurance?

Answer 38

Structured Settlement
Novation - the primary company’s liabilities completely extinguished
Reinsurance of a Claims Made policy (after retroactive date, but before the effective date of the contract)

Question 39

Define a Commutation

Answer 39

an agreement between ceding and reinsurer that provides valuation, payment, and discharge of obligations from both parties under a certain reinsurance contract