Part C Actex Qs Flashcards
Only Short Answer in section C. Majority of this section is Long Answer
In the Canadian Annual Return (P&C1) a company’s share of the Facility Association premium and claims is reported as
a) direct business
b) reinsurance assumed
Direct business
According to the instruction for P&C 1, any commission not exclusively attributable to premium volume is a contingent commission and would be considered non-referable.
True
According to the Canadian Council of Regulators in Annual Statement Instructions P&C 1, policy acquisition expenses are those incurred only for the acquisition of new business.
False, they include renewal business as well as new
According to the Canadian Council of Insurance Regulators in Annual Statement Instructions P&C1, is the following true or false?
The P&C1 Annual Return must be prepared on an unconsolidated basis
True
According to the Canadian Council of Insurance Regulators in Annual Statement Instructions P&C1, is the following true or false?
Premiums, commissions, and losses relating to automobile insurance policies transferred to the Facility or the PRR are to be treated as ceded reinsurance.
False. They are negative direct business
According to the Canadian Council of Insurance Regulators in Annual Statement Instructions P&C1, is the following true or false?
Contingent commissions are nondeferable
True
According to the Canadian Council of Insurance Regulators in Annual Statement Instructions P&C1, is the following true or false?
The ratio of claims incurred included adjustment expenses.
True
According to the Canadian Council of Insurance Regulators in Annual Statement Instructions P&C1 a P&C insurer would not be required to show the claim liability for structured settlements in its Annual Return, subject to compliance with GAAP, if certain conditions applied. List the four conditions that must be satisfied.
- The insurer owns an annuity whose payments are irrevocably directed to the claimant
- It provides no current or future benefit to the insurer
- The insurer is released by the claimant from its obligations
- The insurer remains liable if required payments are not made
According to the Canadian Council of Insurance Regulators in Annual Statement Instructions P&C1, what is a premium deficiency?
A premium deficiency exists where the unearned premiums will not be sufficient to discharge all the expected liabilities that will accrue to the policies, including all expenses associated with the servicing of the policies
According to the Canadian Council of Insurance Regulators in Annual Statement Instructions P&C1, does GAAP requirements ever supersede statutory requirements for the preparation of P&C1?
Statutory requirements always supersede GAAP
According to the Canadian Council of Insurance Regulators in Annual Statement Instructions P&C1, a complete list of all officers is not required. T/F
True
Which of the following items would be found in the P&C1 Summary of Selected Financial Data for Five Years? (more than 1)
- Gross claims incurred
- Net investment income
- GAAP equity
- Net risk ratio
- Claims ratios by year of accident
1, 2, 4, 5 (GAAP equity not found in the exhibit)
Under what condition is an SIR receivable admissible for statutory test purposes?
How can the regulator ensure that the condition is met?
For an SIR receivable to be admissible, regulators need to be satisfied with its collectibility. (i.e. the policyholder is solvent and has proven ability to pay the retention)
He can request acceptable collateral
Indicate whether calendar year ceded loss incurred by type of reinsurance (quota share, excess of loss, etc) can be found in the Canadian Annual Return?
IT can be found in the exhibit Premiums and Claims - Reinsurance Ceded. Page 70.10
In the 1997 Canadian Annual Return, incurred losses ceded to quota share reinsurer’s are provided for each line of business.
True
Identify four ways in which Schedule P of the US Annual Statement provides more information to an actuary than Page 60.40 of the P&C1 with regard to accident year claims information.
Schedule P provides data:
a) on earned premium,
b) separately for direct and assumed, for ceded, and for net losses
c) for two different categories of LAE
d) on anticipated salvage
e) on incurred losses
f) on loss ratios
g) on non tabular discounts
h) on intercompany pooling
i) for ten accident years
j) on individual lines
k) separately for occurrence and claims-made policies
l) on claim counts
m) on premium development
n) separate data on primary loss-sensitive contracts.
The provision for premium liability is represented by one line on the balance sheet of an insurer’s Annual Statement. T/F
False. The provision for premium liability is not shown explicitly on the balance sheet
According to Cantin and Trahan, equity in the unearned premiums is defined as what?
The expected profits on the unexpired policies.
According to Cantin and Trahan, premiums should be earned on a pro-rata basis over the policy period.
False, premiums should be earned on a basis consistent with the occurrence of losses.
Before finalizing the AA’s Report’s calculation of the equity in the gross UPR, a very unusual and large loss occurs on January 25, 2003 on a policy in force as of December 31, 2002. Should the calculation be revised to account for this event in the actuarial report? List the considerations (3)
The calculation should be revised to account for the loss if any of the following criteria are met by the event producing the loss.
1. it provides info about the entity as it was at the calculation date
2. it retroactively makes the entity a different entity at the calculation date
3. it makes the entity a different entity after calculation date and a purpose of the work is to report on the entity as it will be as a result of the event.
None of these criteria apply therefore the calculation should not be revised
Explain why it is impossible for an insurer to have nonzero values for both the deferred policy acquisition expenses entry and the premium deficiency entry in the statutory financial statements for a Canadian P&C insurer.
If a premium deficiency exists, DPAE must be reduced. If EQUP DPAE, reduce DPAE to zero and set up a liability for the remaining deficiency.
According to MSA, surplus is defined as total assets
False. Liabilities and OSFI required reserves must be subtracted from total assets.
Briefly describe each of the following ratios and identify at what level the results of the ratios may indicate weaknesses in a company’s financial health.
- Net leverage ratio
- Net loss reserves to equity
- Return on equity
- Net leverage ratio = net premiums written as a percentage of adjusted equity. (max = 300%)
- Net loss reserves to equity = discounted loss reserves as a percentage of adjusted equity (max = 200%)
- Return on equity equals net income as a percentage of GAAP equity. (min = 8% prior to 2007)
(Adjusted equity = GAAP equity less capital required for CATs and reinsurance ceded to unregistered reinsurers)
According to OSFI in Guideline - MCT for P&C insurers, the risk of default for recoverables from reinsurers arises from both credit and actuarial risk.
Define actuarial and credit risk.
Credit risk is the risk that the reinsurers will fail to pay the insurer what it is owed.
Actuarial risk is the risk associated with assessing the amount of the required provision.
