NOTES TO FINANCIAL STATEMENTS Flashcards
SECT C: NOTES TO FINANCIAL STATEMENTS
SECTIONS TO NOTES TO FINANCIAL STATEMENT (9)
- REINSURANCE
- CHANGES TO INCURRED FROM PRIOR AYS
- PREMIUM DEFICIENCY RESERVE
- DISCOUNT
- A&E
- ACCOUNTING POLICIES
- INTERCOMPANY POOLING
- STRUCTURED SETTLEMENT
- HIGH DEDUCTIBLE
SECT C: NOTES TO FINANCIAL STATEMENTS
REINSURANCE PARTS IN NOTES TO FINANCIAL STATEMENT (8)
A. UNSECURED REINS RECOV > 3% PHS
B. DISPUTED
C. ASSUMED & CEDED REINS - POSSIBLE CEDING COMMISSION ABUSE
D. UNCOLLECTIBLE REINS
E. COMMUTATIONS
F. RETROACTIVE REINSURANCE
G. DEPOSIT REINSURANCE
H. RUN-OFF
SECT C: NOTES TO FINANCIAL STATEMENTS
REINSURANCE NOTE
• Section A: Unsecured reinsurance recoverables
o If recoverable > 3% of PHC, disclose reinsurers without any security held by/held for cedant (LOC, trust agreement, funds withheld)
o Include paid losses billed but not yet collected, ceded reserves and ceded UEP
• Section B: Reinsurance recoverables in dispute
o May be warning sign that insurer is in financial trouble and is trying to over-recover from reinsurer
• Section C: Reinsurance assumed and ceded
o Includes information on ceding commissions related to ceded UPR
o Helps identify when ceding commissions are used to artificially enhance surplus position
• Section D: Uncollectible reinsurance
o Written off as an expense
• Section E: Commutation of ceded reinsurance
o Income statement: payments from reinsurer is recorded as a negative paid loss
o Balance sheet: loss reserve is increased
• Section F: Retroactive reinsurance
o Gain = Ceded reserves – Premium paid
o Income statement: gain is recorded as other income
o Balance sheet: gain is recorded as special surplus
• Section G: Reinsurance accounted for as a deposit
o For reinsurance contracts that do not meet risk transfer criteria
o Accounted for separately from UW income
• Section H: Disclosures for the transfer of P&C run-off agreements
SECT C: NOTES TO FINANCIAL STATEMENTS
CHANGE IN INCURRED LOSS & LAE (FROM PRIOR AYS) NOTE
• Amount of change, segments that changed and reason for change
• Changes can distort current year’s UW income
• Recurring changes may indicate that there are issues with reserving process
SECT C: NOTES TO FINANCIAL STATEMENTS
PREMIUM DEFICIENCY RESERVE (PDR) NOTE
• PDR exists when UPR < E[L] + E[LAE] + maintenance expenses
• Accounted for as write-in liability or as part of UPR
• Amount and if investment income was considered
SECT C: NOTES TO FINANCIAL STATEMENTS
DISCOUNTING OF LIABILITIES FOR UNPAID LOSS & LAE NOTE
- Tabular discounts (WC)
• Applies specifically to annuity-type claims that pay pension benefits
• Reflects mortality and defined interest rate - Nontabular discounts (WC, med mal)
• Aggregated by specific segments based on projected payment pattern and assumed discount rate
• Less common
SECT C: NOTES TO FINANCIAL STATEMENTS
ASBESTOS/ENVIRONMENTAL (A&E) RESERVE NOTE
• Affected LOBs, nature of exposures, reserving methodology, pure IBNR
SECT C: NOTES TO FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NOTE
• Source of accounting rules used to construct Annual Statement
• Include exceptions that were made and basis of exceptions
a. Prescribed – required by state law
b. Permitted – requires state approval
SECT C: NOTES TO FINANCIAL STATEMENTS
INTERCOMPANY POOLING NOTE
• Disclose if pool exists, including
i. Members of pool
ii. Lead company
iii. Pooling percentage of each participant
SECT C: NOTES TO FINANCIAL STATEMENTS
STRUCTURED SETTLEMENTS NOTE
• Aggregated nominal amount
• If remaining payments for single life insurer > 1% of PHS, disclose name of life insurer and remaining payments
SECT C: NOTES TO FINANCIAL STATEMENTS
HIGH DEDUCTIBLE NOTE
• Reserve credit that insurer has recognized for the unpaid claims
• Amount billed but not yet collected for the paid claims
