Odomirok Ch 18: Insurance and Expense Exhibit Flashcards
What does the IEE provie?
Detailed information about the expenses of an insurer. It provides detail by line of business.
List the 3 parts of the IEE:
- 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
When does the IEE need to be filed:
4/1 following the Annual Statement date.
List some uses of the IEE:
- 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
What categories are expenses divided into in Part 1 of the IEE:
- LAE
- Other Underwriting Expenses (further allocated into Acquisition, Field Supervision & Collection Expenses/ General Expenses/ Taxes, Licenses & Fees)
- Investment Expenses
What categories does the IEE divide the investment gain into:
- Investment Gain on Funds Attributable to Insurance
Transactions - Investment Gain Attributable to Capital & Surplus
What is surplus allocated proportional to:
Mean net loss & LAE reserves + Mean UEPR + EP for the year
Steps to allocate investment gain to line:
- Allocate Surplus to Line
- Allocate Ceded Reinsurance Premiums Payable to line
- Calculate the company’s investment gain ratio
- Calculate the Investment gain on funds attributable to insurance transactions, for each line.
- Calculate the Total Investment Gain
- Calculate Investment attributable to capital and surplus
What is the allocation of ceded reinsurance premiums payable to line based on?
It is based on the distribution of ceded written premium.
Equation for Investment gain ratio:
- Also know the formula for total investable assets
= Net investment gain / Total investable assets
- Unrealized Capital Gains are NOT included in Net Investment Gain.
**Total investable assets = Mean net loss & LAE reserves + Mean net unearned premium reserves + Mean ceded reinsurance premiums payable + Mean policyholders’ surplus - Mean agents’ balances
Total Investable Assets
Total investable assets = Mean net loss & LAE reserves + Mean net unearned premium reserves + Mean ceded reinsurance premiums payable + Mean policyholders’ surplus - Mean agents’ balances
Equation for Investment gain on funds attributable to insurance transactions:
=investment gain ratio * Funds attributable to insurance transactions for the line
- funds attributable to insurance transactions for each line:
=Mean net loss & LAE reserves + Mean UEPR * [1 - (prepaid expenses / written prem)] - (Mean net agents’ balances - ceded reinsurance premiums payable)
Formula for Prepaid Expenses:
Commission & Brokerage expenses incurred + Taxes, licenses & fees incurred + Other acquisition, field supervision & collection expenses + (1/2) * general expenses incurred
Formula for Funds Attributable to Insurance Transactions for each line
=Mean net loss & LAE reserves + Mean UEPR * [1 - (prepaid expenses / written prem)] - (Mean net agents’ balances - ceded reinsurance premiums payable)
Formula for Total Investment Gain:
= 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.
