Odomorik 18 - IEE Flashcards
IEE Part 1
Allocation of other UW expenses
IEE Part 2
Allocation of pretax profit by LOB, net
IEE Part 3
Allocation of pretax profit by LOB, direct; investment income not available (assets are on net basis)
IEE filing date
4/1
Expense categories, IEE
LAE, other UW, Investment
Allocation of other UW expenses
Commission & brokerage: Acquisition Other expenses (not taxes): allocated to general expenses or acquisition
Other UW expense categories, IEE
Acquisition, Field Supervision & Collection
General
Taxes, Licenses, Fees
“Total investible assets”
Sum of mean (net LLAE reserves, net UEPR, ceded reinsurance premiums payable, surplus) minus mean agents’ balances
“Funds attributable to insurance transactions”
Sum of mean [net LLAE reserves, net UEPR*(1 - prepaid expense %)] minus mean (agents’ balances + ceded reinsurance premiums payable)
IEE Interrogatories
- 1 Any items requiring special explanation
- 2 Items allocated different from instructions?
- 3 If yes explain.
Investment income not shown by LOB in annual statement
Can’t be specifically be allocated to policies
Allocation of investment income to LOB - regulators
See if LOB rates are excessive/inadequate (would be hidden in overall numbers)
Two components on investable income
Funds attributable to insurance transactions
Funds attributable to capital and surplus
Prepaid expenses
Commission + Taxes + Other + 0.5*General
Investment gain ratio
(Investment income due and accrued + realized)/mean(PHS + LLAE reserves + UEPR reserves - agents balances)
IEE as measure of profitability
Best used as retrospective measure, not for pricing as it is based on historical reserves
IEE to determine adequacy
Retrospective; not applicable if there have been changes – look at required return
Argument against allocation of surplus using NAIC (and alternate)
Ignores inherent LOB risk (internal model) Retro approach (TVaR) Surplus not actually allocated to line
IEE uses - actuary
Benchmarking
Identify profitable LOB
Pricing (expense loads)
IEE uses - investors
Which insurers to invest in
Analyze insurer historical profitability
Judge company’s use of capital
IEE uses - competitors
IEE is public
Compare investment income, expenses, etc
Gauge relative profitability
Difference between IEE and UIE
IEE includes expenses by LOB
IEE further allocates UW expenses (acquisition, general, taxes)
Why adjustment is needed for UEPR in funds attributable to insurance transactions
They have been expensed and not an asset; total investment funds need no such adjustment as PHS includes this
