Part 5 (Odomirok 12) (**)

Question 1

Piece of Five Year Historical Data Exhibit that gives us Written Premium

Answer 1

Shows gross and net premiums by:

> Liability
Property
Property & Liability Combined (not sum of first 2. but HO ins which has both)
All other
Non-proportional reinsurance

Question 2

What does the Written premium show us over time

Answer 2

Shows change over time in:
> Premium (has it been growing, mix changing by line?)
> Use of reinsurance
> Business mix (related to premium, growing relative to liability?)

Question 3

What to look out of in Written premium section

Answer 3

Look out for:

> Rapid Change in revenue (Increasing or decreasing)
- Increasing may mean encountering new type of risks or in need of cash
- Premium shrinking may mean difficulty getting business

> Changes in level of reinsurance protection
- If switching lines, purchasing more reinsurance for that line?

> Increase in exposure to riskier/unprofitable lines
- Schedule P
- IEE

> Shifts from liability to property lines
- property lines have catastrophic losses

> Shifts from property to liability lines
- Longer tailed lines. So if switching from short, need to plan for volatility in uncertain reserves

Question 4

What can we use the Balance Sheet for

Answer 4

Identifying the components of the change in surplus

> Looking to see if there was a move to riskier assets
Change in loss reserves, unearned premium, and surplus relative to business mix
- More reserves for catastrophes in HO?
- More surplus for riskier business?

Question 5

Risk Based Capital Exhibit

Answer 5

Can calculate the RBC ratio using components listed here

Question 6

Operating Percentages Exhibit

Answer 6

Shows the ratio to earned premium of:
> Loss
> LAE
> U/W Expenses
> Profit

Looking for trends. Is loss ratio increasing, profit decreasing?

Question 7

One and Two Year Loss Development Exhibit

Answer 7

Decide if development is one off or if sign of under-reserving

Do this by looking at:
> Discussion with management
> Notes to the Financial Statements
> Schedule P, Part 2
> Public reports published by the company

Question 8

What parties would be concerned about favorable development (decreasing reserves)

Answer 8

IRS - taxable income may have been understated in prior years
Investors - insurer was holding too many funds, investors providing too much money to company