Odomorik 18 - IEE

Question 1

IEE Part 1

Answer 1

Allocation of other UW expenses

Question 2

IEE Part 2

Answer 2

Allocation of pretax profit by LOB, net

Question 3

IEE Part 3

Answer 3

Allocation of pretax profit by LOB, direct; investment income not available (assets are on net basis)

Question 4

IEE filing date

Answer 4

4/1

Question 5

Expense categories, IEE

Answer 5

LAE, other UW, Investment

Question 6

Allocation of other UW expenses

Answer 6

Commission & brokerage: Acquisition
Other expenses (not taxes): allocated to general expenses or acquisition

Question 7

Other UW expense categories, IEE

Answer 7

Acquisition, Field Supervision & Collection
General
Taxes, Licenses, Fees

Question 8

“Total investible assets”

Answer 8

Sum of mean (net LLAE reserves, net UEPR, ceded reinsurance premiums payable, surplus) minus mean agents’ balances

Question 9

“Funds attributable to insurance transactions”

Answer 9

Sum of mean [net LLAE reserves, net UEPR*(1 - prepaid expense %)] minus mean (agents’ balances + ceded reinsurance premiums payable)

Question 10

IEE Interrogatories

Answer 10

4. 1 Any items requiring special explanation
5. 2 Items allocated different from instructions?
6. 3 If yes explain.

Question 11

Investment income not shown by LOB in annual statement

Answer 11

Can’t be specifically be allocated to policies

Question 12

Allocation of investment income to LOB - regulators

Answer 12

See if LOB rates are excessive/inadequate (would be hidden in overall numbers)

Question 13

Two components on investable income

Answer 13

Funds attributable to insurance transactions

Funds attributable to capital and surplus

Question 14

Prepaid expenses

Answer 14

Commission + Taxes + Other + 0.5*General

Question 15

Investment gain ratio

Answer 15

(Investment income due and accrued + realized)/mean(PHS + LLAE reserves + UEPR reserves - agents balances)

Question 16

IEE as measure of profitability

Answer 16

Best used as retrospective measure, not for pricing as it is based on historical reserves

Question 17

IEE to determine adequacy

Answer 17

Retrospective; not applicable if there have been changes – look at required return

Question 18

Argument against allocation of surplus using NAIC (and alternate)

Answer 18

Ignores inherent LOB risk (internal model)
Retro approach (TVaR)
Surplus not actually allocated to line

Question 19

IEE uses - actuary

Answer 19

Benchmarking
Identify profitable LOB
Pricing (expense loads)

Question 20

IEE uses - investors

Answer 20

Which insurers to invest in
Analyze insurer historical profitability
Judge company’s use of capital

Question 21

IEE uses - competitors

Answer 21

IEE is public
Compare investment income, expenses, etc
Gauge relative profitability

Question 22

Difference between IEE and UIE

Answer 22

IEE includes expenses by LOB

IEE further allocates UW expenses (acquisition, general, taxes)

Question 23

Why adjustment is needed for UEPR in funds attributable to insurance transactions

Answer 23

They have been expensed and not an asset; total investment funds need no such adjustment as PHS includes this