Odomirok 8-9 Flashcards

1
Q

Underwriting Income formula

A

Earned Premium - Loss & LAE Incurred - Other Underwriting Expenses Incurred

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

List some factors that can be used to allocate expenses

A

Premium, claim count or headcount

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

List some problems that may arise if expenses are not accurately allocated

A
  • distorted profitability measures
  • inefficient allocation of resources
  • anti-selection
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

The Exhibit of Net Investment Income divides the investment income from bonds into

A
  • Interest received during the year
  • Interest due & accrued
  • Current year’s amortization/ accretion
  • Interest paid for accrued interest on dividends
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Describe interest paid for accrued interest on dividends

A

Required whenever an insurer purchases a bond between coupon payments. It needs to pay the seller for the portion of the next coupon payment earned by the seller.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Why is Amortization or accretion of bonds required

A

The coupon rate is different to the market interest rate at the time the bond is purchased. The amortization produces an amortized cost equal to the face value at maturity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Formula to derive realized gain when bond is sold

A

Amount received - adjusted carrying value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Define redeemable preferred stock

A

Preferred stock that is redeemable at the option of the issuer at a specified maturity date, or after a specified period of notice, for a specified price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Define perpetual preferred stock

A

Preferred stock with no maturity date (i.e., can not be redeemed by the issuer)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

How can a derivative qualify to be a “highly effective” hedge

A

If the insurer can demonstrate that a derivative has significantly reduced a particular risk exposure

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Describe hedge accounting treatment

A

The derivative receives the same accounting treatment as the hedged asset

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

How are derivatives that do not qualify for hedge accounting treated

A

Mark-to-market accounting (any changes in fair value are recorded as unrealized gains)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

2 types of investment guidelines that are permitted by the NAIC Model Investment Law

A
  • Defined Limits: quantitative limits
  • Prudent Person: a principles based approach, which enables the insurer to develop its own guidelines
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

List some components of Other Income

A
  • Net Gain from Agents’ or Premium Balances Charged Off
  • Finance & Service Charges not included in Premiums
  • Aggregate Write-ins for Miscellaneous Income (Gain on sale of equipment, Retroactive Reinsurance gain, Gain on Foreign Exchange, Corporate Expenses, Fines & penalties)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Equation to derive Current Year’s surplus from prior value

A

= Prior Years Surplus + Current Years Net Income + Other Surplus Changes + Additional Capital Contributions - Stockholder Dividends

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Describe accounting treatment when stocks are issued

A
  • The amount collected associated with the par value is recorded as paid in capital
  • The excess is paid-in surplus