Odomirok 10 Flashcards
Notes requiring direct involvement by actuaries
CARD+PDR
* Change (incurred loss & LAE)
* Asbestos & environmental reserves
* Reinsurance
* Discounting (unpaid loss & LAE)
* PDR (Premium Deficiency Reserves)
Notes relevant to actuaries
SHIES
* Summary of significant accounting principles
* High deductibles
* Intercompany pooling
* Events subsequent
* Structured settlements
Change (incurred loss & LAE)
Financial Notes
Shows prior AY changes:
* affects current CY UW income
* disclose change & reasons for change (segment, LOB, …)
Asbestos & environmental reserves
Financial Notes
- significant adverse development over several decades
- must disclose detailed quantitative & qualitative info regarding reserves
- these reserves relate to exposures other than for policies specifically covering A&E
Past 5 years (separate for asbestos & environmental - direct, assumed, net):
* Beginning reserves
* Incurred Loss and LAE
* Calendar year payments for losses and LAE
* Ending reserves
Reinsurance
Financial Notes
Reserves are net of reinsurance on the B/S & I/S:
* reinsurance can significantly lower the B/S reserves and affect the surplus
* must understand credit risk associated with reinsurance
* A: unsecured recoverables, B: disputed recoverables, C: reinsurance assumed & ceded (ceding commissions, ceded UEP), D: uncollectible recoverables
Questions the actuary might ask about each section:
* A: why wasn’t security provided? did a cat increase recoverables unexpectedly? are the unsecured amounts concentrated with 1 reinsurer?
* B: what is the nature of the dispute? is the disputed amount material? is there a legal opinion on the dispute?
* D: what was the reason for the uncollectible insurance? could other unpaid amounts become uncollectible for similar reasons?
Other comments:
* A: a note is required if (unsecured amounts for a reinsurer) / surplus > 3%
* B: recoverable is considered to be in dispute once a formal written refusal to pay is received from the reinsurer
* D: uncollectible amount is treated as an expense
Discounting (unpaid loss & LAE)
Financial Notes
- disclose whether discounting is used for reserves
- if so, then disclose type of discounting: tabular (for WC) or non-tabular
PDR (Premium Deficiency Reserves)
Financial Notes
- inclusion of investment income to offset PDR is optional
- disclose amount and effective date of PDR
- if PDR is recorded as part of UEP then this Note is the only way to know if PDR exists
Summary of significant accounting principles
Financial Notes
- disclose source of rules (usually NAIC APPM and the SSAPS)
- disclose exceptions to rules
High deductibles
Financial Notes
- insurer pays the full claim and then seeks reimbursement from the insured for the deductible
- creates credit risk that isn’t shown on the B/S
- disclose amount recorded & billed but not collected
Intercompany pooling
Financial Notes
this is when companies in a group cede all business to lead company:
* each member of group then assumes back a specified percentage
* note must disclose pooling arrangements
pooling affects: U&IE, Schedule F Parts 1 & 3
Schedule P shows only pool member’s share of pooled results
Events subsequent
Financial Notes
- must disclose Type 1 (recognized - e.g. updated info on already reported claim) & Type 2 (non-recognized - e.g. new large claim reported) subsequent events (SSAP-9)
- occur between date of financial statements and date the financial statements are issued
Structured settlements
Financial Notes
usually WC - insurer buys annuity from life insurer for structured settlements payments
* disclose total amount of structured settlements payments for which insurer might be liable
* if payments from single life insurer > 1% of surplus > disclose life insurer & amount
pertains to credit risk and is not shown on the B/S
Accounting treatment of: retroactive reinsurance
Balance sheet:
* purchase price decreases assets
* ceded reserves recorded as write-in contra liabilities
* surplus gain recorded as special surplus (until recoverables > purchase price)
Schedule P:
* no effect (because reserves are recorded as write-in contra liabilities)
Accounting treatment of: runoff agreement
Balance sheet:
* purchase price counts as paid loss
* reserves recorded as ceded loss
Schedule P:
* shows decrease in net incurred loss
Accounting treatment of: commutation
Balance sheet:
* purchase price increases assets
* re-assumed reserves increase direct reserves
* surplus gain recorded as unassigned surplus
Schedule P:
* shows increase in current year reserves
