Odomirok 18 IEE Flashcards
What info is shown on the Insurance Expense Exhibit (IEE)
IEE shows statutory profit (loss), both direct & net of reinsurance, by LOB whereas the Income Statement shows only aggregate info net of reinsurance
Uses of IEE to actuary, policyholder, investor, competitor, regulator, rating agency
Actuary:
* examine premium, loss, expenses by line
* benchmark company performance by line
Policyholder:
* examine expenses by line
* may affect purchase decision because lower expenses mean lower rates
Investor:
* examine profitability versus premium growth by line
* may affect investment decision if growth is in unprofitable lines
Competitor:
* examine profit & expenses by line
* may affect market entry decision in lines where profits are high
Regulator:
* examine data/trends by line
* highlights solvency and/or rate concerns by line that the income statement may mask
Rating agency:
* examine profit by line
* highlights subsidies from strong lines to weak (or all lines independently strong)
IEE Parts
Part 1
* allocates expenses into 22 different expense groups
* doesn’t show profit (loss)
Part 2
* shows pre-tax profit (loss) net of reinsurance
Part 3
* shows pre-tax profit (loss) direct of reinsurance
* excludes all investment gain
Interrogatories
* explanatory notes for Parts 1, 2, 3
* interrogatory question #4 is very important: provides info on the allocation of profits & expenses to line
* if the allocation is done in a standard way then no further info is required
Surplus Ratio formula
SR = m(S) / [m(L) + m(LAE) + m(UEP) + NEPcy]
SR = Surplus Ratio
S = Surplus
L = Loss reserve
LAE = LAE reserve
UEP = UEP reserve
NEPcy = NEP for current year
Surplus allocated to LOB A formula
Sa = SR x [m(La) + m(LAEa) + m(UEPa) + NEPa,cy]
Advantages of surplus allocation method
R2-DC
* Not distorted by Reinsurance
* Uses 2 years of data to smooth results (reduces distortions)
* easy to obtain Data (from annual statement)
* easy to Calculate & compare across companies & lines of business
Disadvantages of surplus allocation method
FARCe
* does not reflect Future business or growth (it is retrospective)
* does not allow for Actuarial/management input (method is formulaic)
* does not reflect Risk characteristics of line of business (e.g. short vs long-tail)
* does not recognize Catastrophe potential
* e doesn’t stand for anything
Net Investment Gain Ratio formula
NIGR = NIG / TIA
NIG = Net Investment Gain
TIA = Total Investable Assets
Total Investable Assets formula
TIA = m(L) + m(LAE) + m(UEP) + m(re) + m(S) - m(AB)
re = ceded reinsurance premium payable
S = Surplus
AB = Agents’ Balances
Two components of Total Net Investment Gain
- Investment gain attributable to Capital & Surplus
- Investment gain attributable to Insurance Transactions
Net Investment Gain Attributable to Insurance Transactions (NIGIT) formula
NIGITa = NIGR x FAITa
FAIT = Funds Attributable to Insurance Transactions
Funds Attributable to Insurance Transactions formula
FAITa = m(La) + m(LAEa) + m(UEPa) + m(rea) - m(ABa) - (PPE for UEP)a
Prepaid Expense formulas
(PPE for UEP)a = PPERa x m(UEPa)
Pre-Paid Expense Ratio:
PPERa = (net acquisition expense)a / NWPa
Total Profit (Loss) formula
Total Profit (Loss) = (Pre-tax profit excluding InvGain) + InvGain(Insurance Transactions) + InvGain(Capital & Surplus)
Underwriting & Investment Exhibit parts
- Part 1 - Premiums Earned
- Part 1A - Recapitulation All Premiums
- Part 1B - Premiums Written
- Part 2 - Loss Paid & Incurred
- Part 2A - Unpaid Loss & LAE
- Part 3 - Expenses
