Part 6 (Odomirok 13)

Question 1

Schedules and What they cover

Answer 1

Schedule:
A - Real Estate
B - Mortage Loans
BA - Other Long Term Invested Assets
D - Long term Bonds
DB - Short Term Investments
DL - Securities Lending Collateral Assets
E - Cash

Question 2

Schedule A (Least Testable Schedule)

Answer 2

Part 1: Real Estate owned at the end of the year (as of 12/31)
Part 2: Real Estate purchased during the year
Part 3: Real Estate sold during the year

Question 3

Schedule B (Highly Testable)

Answer 3

People who owe money to the insurance company
Part 1: Details about all the mortgage loans at year end
Part 2: Acquired mortgage loans during the year
Part 3: Mortgage loans that ended during the year

> Shouldn’t have significant investment here
Not part of core insurance strategy
Illiquid (Not liquid)

Question 4

Schedule BA

Answer 4

Long Term Assets - Assets not included in any of the other invested asset schedules

Part 1: Assets owned year end
Part 2: Purchased assets during year
Part 3: Assets sold during the year

> Look at cash flows and compare to magnitude and timing of payments so no cash flow issues arise.

Question 5

Schedule D (Most important)

Answer 5

Stock and Bonds

Part 1: Long term bonds and CDs owned at year end
Part 2: Stocks owned at year end
Part 3: Bond & stocks acquired during current year and still owned as of 12/31
Part 4: Bonds & stocks owned at start of year but sold during year
Part 5: Bonds & stocks acquired and also sold during the year
Part 6: Preferred & Common stocks in affiliates

Question 6

Schedule DA

Answer 6

Short Term investments mature in a year.
Exception - Cash Equivalents are short term if mature within 3 months

Usually:
Bonds
Mortgage Loans
Exempt Money market mutual funds
Class one money market mutual funds
Other short-term, invested assets

Question 7

Schedule DB (Less important)

Answer 7

Derivatives

Part A: Positions in options (The different derivatives insurance company holds)
Part B: Positions in futures
Part C: Position in replication transactions
Part D: Counterparty exposure (credit risk) for the derivative instruments

Parts A and B are divided into 2 sections:
- Section 1 are the open positions year end
- Section 2 are the positions terminated during the year

Question 8

Schedule DL (Important financial crisis)

Answer 8

Securities lending collateral assets

> Company lends securities to another party, in return for a fee
Borrower with short sell asset, hoping to repurchase at lower price, then return to owner
Borrower needs to post collateral due to credit risk
Lender can invest this collateral, but needs to have it available to return to the borrower when they return the securities.
- Borrower can usually return the securities with short notice
- one of the causes of the financial crisis is companies investing in longer term, riskier securities, which plummeted in value

Question 9

Schedule E

Answer 9

Cash and Cash equivalents

Part 1: Totals of cash held at offices, cash at the bank, CDs maturing
Part 2: Cash equivalents
Part 3: special deposits (collateral)

Question 10

Schedule T (Important)

Answer 10

Part 1: Exhibits of Premiums Written
- Allocated balances to state (WP, EP, policyholder dividends, losses)
- - shows where insurer writes business
- - Changing geographic exposure (exposure in risky states inc, dec)
- - Derive CW factors by using state factors
- First column shows active status

Part 2: Interstate Compact - Exhibit of Premiums Written

Question 11

Schedule Y (Less important)

Answer 11

Holding company group insurer member activities

Part 1: Organizational chart
- See how things are structured

Part 2: Summary of the transactions amount the members of the holding company system