Odomirok 18

Question 1

List the 3 parts of the IEE

Answer 1

Part 1. Allocation of other underwriting expenses
Part 2. Allocation of pretax profit by line, on a net basis
Part 3. Allocation of pretax profit by line, on a direct basis

Question 2

When does the IEE need to be filed

Answer 2

4/1 following the Annual Statement date

Question 3

List some uses of the IEE

Answer 3

• Regulators: monitor the financial health of the insurer. It may indicate trends by line of business may threaten the solvency of the entire insurer
• Regulators: monitor rate adequacy
• Stakeholders: determine the lines that were profitable, and use this knowledge to help make business decisions
• Investors: help determine how much to invest in the insurer
• Actuaries: source of premium, losses, and expenses for benchmarking

Question 4

What categories are expenses divided into in part 1 of the IEE?

Answer 4

• LAE
• Other Underwriting Expenses (further allocated into Acquisition, Field supervision & collection expenses/general expenses/taxes, licenses & fees)
• Investment expenses

Question 5

What categories does the IEE divide the investment gain into?

Answer 5

• Investment gain on funds attributable to insurance transactions
• Investment gain attributable to capital & surplus

Question 6

What is surplus allocated proportional to?

Answer 6

Mean net loss & LAE reserves + Mean UPR + EP for the year

Question 7

Equation for Investment gain ratio

Answer 7

=Net investment gain / Total investable assets

Where total investable assets = Mean net loss & LAE reserves + Mean net unearned premium reserves + mean ceded reinsurance premiums payable + Mean policyholders’ surplus - Mean agents’ balances

Question 8

Equation for investment gain on funds attributable to insurance transactions

Answer 8

= Investment gain ratio * funds attributable to insurance transactions for the line

Where the funds attributable to insurance transactions for each line:
=Mean net loss & LAE reserves + Mean UPR * [1-(prepaid expenses/written prem)] - (mean net agents’ balances. - ceded reinsurance premiums payable)

Question 9

Formula for prepaid expenses

Answer 9

Commission & Brokerage expenses incurred + taxes, licenses & fees incurred + Other acquisition, field supervision & collection expenses + (1/2) * general expenses incurred

Question 10

Formula for total investment gain

Answer 10

= company’s investment gain ratio * investable funds associated with the LOB

Where investable funds associated with the LOB = Mean net loss & LAE reserves + mean UPR - Mean net agents’ balances + ceded reinsurance premiums payable + allocated PHS