Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Exam 6 > Part 15 (Odomirok 21) (***) > Flashcards

Part 15 (Odomirok 21) (***) Flashcards

*** Strengths and limitations of the tools for solvency of insurers

1
Q

T/F We are able to rely on an individual tool to exclusively make a conclusion about the financial health of the insurer

A

False, each tool only provides one piece of evidence

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

T/F We can NOT replace an audit by instead using the Measurement Tools

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

T/F Measurement tools do not guarantee the input data is accurate/complete

A

True

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

T/F These tools indicate if management has implemented good internal management, systems, and controls

A

False

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

T/F These tools will uncover fraud

A

False

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are the two views of financial health the statutory financial statement provides of the insurer

A
  • Balance sheet strength
  • Earning Potential
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Why is Balance sheet Strength one of the views of financial health

A

Regulators want to ensure that the insurer can pay its claims

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are the two areas that can impair solvency in the Balance Sheet

A
  • Loss & LAE reserve adequacy
  • Unearned Premium Reserve Adequacy
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What can regulators refer to for Loss & LAE reserve adequacy

A
  • Five Year Historical data exhibit
  • Notes to the financial statement
  • Schedule P, Parts 2-4
  • Schedule F, Part 3
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What does the Five Year historical data exhibit show about Loss & LAE reserve adequacy

A

How losses have developed over time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What does the Notes to Financial Statements include that refer to Loss & LAE reserve adequacy

A

Includes management’s discussions about changes in the incurred losses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What does Schedule P, Parts 2-4 provide that relates to Loss & LAE reserve adequacy

A

Provides data to perform tests of reserve adequacy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What does Schedule F, Part 3 show that relates to Loss & LAE reserve adequacy

A

Lists reinsurers, so regulators can examine the reinsurers used, strength

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What 2 things would cause regulators to want to assess the adequacy of unearned premium reserves

A
  • Accident year loss & LAE ratios (From Schedule P, Part 1) > 100%
  • Deficiencies in the loss Reserves
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

When examining the balance sheet strength, what will regulators also look to (other than Reserve adequacy)

A

Investable Assest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is looked for/monitored in Investable assets

A
  • Changes in investable asset values and yields on invested assets
  • If insurer generally invests in riskier assets than industry average, look at effectiveness of insurer’s hedging
17
Q

What can be looked at to generate early warnings of future problems in earning

A

Trends in Financial Ratios

18
Q

What trends are they looking for in financial ratios to generate early warnings of future problems in earning

A
  • Large growth in written premium during a soft market
  • Increases in underwriting or other expense ratios
  • Deteriorating loss ratios
  • Increased exposure to CAT/large events
  • Losses on investments, Change in Mix of Invested assets, Declining yield on investment assets
  • Increase in the provision for reinsurance
19
Q

What does Large growth in written premium during a soft market indicate

A

Insurer may be paying more commission

20
Q

What does Increases in underwriting or other expense ratios indicate

A

Insurer may be paying more commission, and less of premium is available to pay for losses

21
Q

What does Deteriorating loss ratios indicate

A

Price increases are not sufficient enough to keep up with the increase in losses

22
Q

What does Losses on investments, Change in Mix of Invested assets, Declining yield on investment assets indicate

A

Insurer has changed its investment strategy, or lacks controls of the investment strategy

23
Q

What does Increase in the provision for reinsurance indicate

A

Increase credit risk

24
Q

What do IRIS ratios focus on and what is the
Disadvantage with IRIS ratios

A

IRIS focuses on balance sheet strength and earnings quality
There is not direct link between the results of the ratios and regulatory intervention

25
Q

What does RBC focus on and
Disadvantage with RBC

A

Balance sheet risk and profitability

Most of the factors that enter the calculation are based on industry wide experience instead of the company’s own

26
Q

What does SOA and AOS stand for,
what do they focus on, and why important

A

Statement of Actuarial Opinion
Actuarial Opinion Summary

Present Actuary’s opinion of the loss reserve adequacy
Important because, loss reserves are typically the largest single item on the balance sheet

27
Q

What 2 things do Credit Rating Agencies provide

A
  • Financial strength rating (FSR)
  • Debt/ issuer ratings
28
Q

What are FSRs

A

Financial strength ratings are ratings of ability to meet obligations to the policyholder

29
Q

What do Debt/ issuer ratings measure

A

They measure the ability to meet debt obligations

30
Q

What type of factors are the FSRs and Debt ratings based on

A

Quantitative and Qualitative factors

31
Q

What type of stakeholders can use FSRs

A
  • Policyholders
  • Directors of corporate policyholders
  • Insurers
  • Investors
32
Q

How can policyholders use FSRs

A

Use to assess chance that insurer can pay its claims

33
Q

How can directors of corporate policyholders use FSRs

A

Require the use of highly rated insurers, and also the use of cancelation endorsements

Can use Finacial strength ratings to see

34
Q

How can insurers use FSRs

A

To decide which companies to cede business to

35
Q

How can Investors use FSRs

A

Decide whether to invest in the insurer

36
Q

What did the AAA study of insolvencies find (3 things)

A
  • Insolvency is caused by a combination of factors
  • Size/ experience/ diversification had a significant impact
  • Good management and governance is essential
    • Poor decision making includes insufficient reinsurance, very rapid growth, inadequate pricing
37
Q

What were the findings of the effectiveness of the SAOs

A

The Statement of Actuarial Opinions had

  • Only one SAO was qualified, the remaining were “reasonable”
  • Half concluded there was risk of material adverse deviation, 37% said no risk, and remaining said nothing
38
Q

Main messages about the study of how tools have faired

A
  • Financial impairment is caused by a VARIETY of factors
  • A VARIETY of tools need to be used collectively to help detect companies that are at risk for impairment

Exam 6 (31 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions