Odomorik 10: Notes to Financial Statements

Question 1

Notes To Financial Statement, Reinsurance Section A

Answer 1

Unsecured Reinsurance Recoverables; disclose reinsurers that don’t provide collateral if recoverables exceed 3% of surplus

Question 2

Retroactive reinsurance accounting treatment

Answer 2

Ceded reserves are negative write-in (balance sheet), any gain recorded as other income

Question 3

Retroactive Reinsurance Note disclosures

Answer 3

Reserves transferred
Consideration paid
Paid losses reimbursed
Special surplus generated
Reinsurers involved

Question 4

Notes to Financial Statement, Change in Incurred Loss/LAE

Answer 4

Discloses changes in estimates from prior AYs; it lists amount of change, LOBs responsible, reasons for change

Question 5

Notes to Financial Statement, Premium Deficiency Reserves

Answer 5

When UEP is not enough to cover losses to be incurred; disclose amount and whether or not investment income was considered

Question 6

Notes to Financial Statement, Discounting

Answer 6

Part 1: whether tabular discounting is used (basis/assumptions), Part 2: whether non-tab is used (basis/assumptions); also, changes in assumptions

Question 7

Notes to Financial Statement, A/E Reserves

Answer 7

Disclose LOBs affected, nature of exposures, reserving methodology; 5-year table with payments, reserves, and pure IBNR (D, A, Net)

Question 8

Notes to Financial Statement, Summary of Significant Accounting Policies

Answer 8

Source of accounting rules (typically NAIC), exceptions made to above rules, either prescribed or permitted

Question 9

Events Subsequent

Answer 9

Events that occur between accounting date of statement and date of issue

Question 10

Events Subsequent, Type 1

Answer 10

“Recognized Subsequent Events” – additional detail on conditions that existed as of accounting date; disclosure only necessary to prevent statements from being misleading (Ex: booked reserves not adjusted in time)

Question 11

Events Subsequent, Type 2

Answer 11

“Nonrecognized Subsequent Events” – events that did not exist as of accounting date (ex: large claim on 1/15); described if they “may have a material effect on the financial condition”

Question 12

Notes to Financial Statement, Intercompany Pooling

Answer 12

Used to assess solvency of aggregate group; mentions Members, Lead company, Pooling percentage

Question 13

Notes to Financial Statement, Structured Settlements

Answer 13

Discloses potential credit risk due to life insurer going insolvent (annuities paid)

Question 14

Notes to Financial Statement, High Deductibles

Answer 14

Discloses reserve credit recognized for unpaid claims and amount billed but not yet collected

Question 15

Reinsurance Note to Financial Statements Sections

Answer 15

CRUDCRUD
Ceded and assumed
Retro
Unsecured
Deposit
Commutation
Run off
Uncollectible
Disputed

Question 16

Unsecured Reinsurance Recoverable Note Disclosures

Answer 16

Name
Paid recoverables
Reserve recoverables
Ceded UEPR

Question 17

Notes requiring direct actuary involvement

Answer 17

CRAPD
Change in incurred LLAE
Reinsurance
A&E
Premium deficiency reserves
Discounting

Question 18

Notes potentially relevant to actuaries

Answer 18

SHIES
Structured settlement
High deductibles
Intercompany pooling
Events subsequent
Significant accounting policies

Question 19

Tabular discount

Answer 19

Based on interest rates/mortality assumptions in tables from regulators

Question 20

Non-tabular discount

Answer 20

Need permission from regulator (mainly WC, medical prof. liability) – can be sign of regulatory concerns