Part 10 (Odomirok 18) (***) Flashcards
*** Part 2 of the Insurance and Expense Exhibit (IEE)
What document shows detailed information about the expenses of an insurer as well as profitability by line of business
The IEE
Annual statement shows be aggregate, so the IEE is kinda like a breakdown
IEE Parts
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
What are the users of IEE and why would they want to use it
Regulators: To monitor financial health of the insurer
Stakeholders: Determine which lines were profitable to make business decisions
Investors: Determine how much to invest in the insurer
Actuaries: Source of premium, losses and expenses for benchmarking
Part 1 of IEE
Allocation to Expense Groups
Expenses are allocated to the following categories in Part 1 of IEE
LAE
Other Underwriting Expenses
- Acquisition, Field Supervision & Collection Expenses
- General Expenses
- Taxes, Licenses, and Fees
Investment Expenses
Other Underwriting Expenses Allocation in Part 1 of IEE
- Commission and brokerage expenses allocated to “Acquisition, field supervision and collection expenses
- Taxes, licenses and fees should be allocated to “Taxes, Licenses & Fees”
- remaining expenses would be allocated to “acquisition, field supervision & Collection expenses” or “General Exp”
Part 2 of IEE
Allocation to Lines Net of Reinsurance
Calculating Pretax profit in Part 2 of IEE
Premiums earned
- Dividends to policyholders
- Incurred Loss
- DCC expenses incurred
- A&O Expenses incurred
- Commission & brokerage expenses incurred
- Taxes, licenses and fees incurred
- Other acquisitions, field supervision and collection expenses incurred
- General expenses incurred
+ Other income less other expenses
+ Investment Gain
Step 1 of calculating Investment Gain
Allocate Mean surplus to Line: Surplus allocated in proportion to
Mean net loss & LAE reserves
+ Mean net UEPR
+ EP for the year
Where surplus ratio is Mean surplus over the sum of the 3 terms above
Step 2 of calculating Investment Gain
Allocate Ceded Reinsurance Premiums Payable to line
Allocate the Mean ceded reinsurance premiums payable to line by the distribution of ceded written premiums
Step 3 of calculating Investment Gain
Calculate the Investment Gain Ratio (IGR)
IGR = Net investment Gain (Before Capital Gains Tax) / Total investable Assets
Calculating Total investable Assets
Mean net loss & LAE reserves
+ Mean net UEPR
+ Mean ceded reinsurance premiums payable
+ Mean policyholders’ surplus
- Mean agents’ balances (AB)
Step 4 of calculating Investment Gain
Calculate the Investment gain on funds attributable to insurance transactions, for each line
IGR * Funds attributable to insurance transactions for the line
Calculating Funds attributable to insurance transactions to each line
Mean net loss & LAE reserves
+ Mean net UEPR * [ 1 - (prepaid expenses / written prem) ]
- (Mean AB - mean ceded reinsurance premiums payable)
Calculating Prepaid Expenses
Commission & Brokerage expenses incurred
+ Taxes, licenses & fees incurred
+ Other acquisition, field supervision & collection expenses
+ (1/2) * general expenses incurred
