Odomirok 1-5

Question 1

Purpose of financial reporting

Answer 1

Communicate financial results to stakeholders

Question 2

Accounting principles prescribed by the state regulators

Answer 2

SAP (consistency & ease regulatory burden)

Question 3

Main reason SAP rules are conservative

Answer 3

Main focus of regulators is ensure that policy holders are protected & highlight insurer solvency

Question 4

Main objective of GAAP and primary users

Answer 4

Results that measure financial performance of company, Investors

Question 5

Describe balance sheet and purpose to actuaries

Answer 5

Assets and liabilities of a company at a certain point in time (snapshot) Purpose to actuary: estimate loss reserves

Question 6

Describe income statement and purpose to actuaries

Answer 6

Shows financial results (income) earned during a period Purpose to actuary: estimate amount and timing of payments

Question 7

Describe Capital and Surplus exhibit

Answer 7

Transactions that impact surplus but not included in the income statement

Question 8

Describe Cash Flow statement

Answer 8

Shows cash flows into and out of the firm (not as important because insurers rarely face liquidity issues)

Question 9

Party that would take a liquidation view vs party that would take a going concern view

Answer 9

Liquidation: regulator (BS) Going concern: investor (IS)

Question 10

Fair Value vs Historical Cost and advantage of each

Answer 10

Fair Value: value it can be traded at in open market, more accurate Historical Cost: purchase price less depreciation, more reliable

Question 11

Principles vs Rules and advantage of each

Answer 11

Principles: general approach, adaptable to change Rules: specific guidelines, easier to interpret

Question 12

Unique aspect of balance sheet

Answer 12

Uncertainty with the estimation of liabilities for unpaid claims and loss reserves