Schedule F Flashcards

1
Q

Provision for reinsurance

A

Liability - minimum reserve for uncollectible reinsurance

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2
Q

Why schedule F is important to actuary

A
  1. Look at assumed reinsurance to assess reasonableness of gross & net rsvs
  2. Analyze collectability risk (balance sheet only shows net rsvs)
  3. SAO requires comment & disclosure of net rsvs
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3
Q

Types of Collateral (4)

A
  1. Funds held by or deposited w/ reinsured company (primary)
  2. Letters of credit
  3. Ceded balances payable
  4. Other amt due to reinsurer
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4
Q

Funds held by or deposited w/ reinsured company (type of collateral)

defined

asset or liability to primary?

asset or liability to reinsurer?

what is the advantage to primary?

A

portion of reinsurer premium withheld to pay claims

liability to primary

Asset to reinsurer

ADV to primary: Reduces primary’s credit risk b/c on hand to pay claims (no need to pay out of own pocket & get reimbursed)

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5
Q

Letter of credit (type of collateral)

defined

adv to primary

disadv to reinsurer (3)

A

defined: Bank issues credit to reinsurance company (to pay primary if can’t meet obligations)

Adv to primary: reduce credit risk b/c reinsurer doesn’t lose it in bankruptcy

  1. Disdv to reinsurer: Banks charge free
  2. Disdv to reinsurer: Reduces line of credit w/ bank
  3. Disdv to reinsurer: Reduces collateralization to meet obligations (reinsurer had to put up collateral w/ bank to get it)
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6
Q

Mapping assets & liab to balance sheet

A
  1. Asset = reinsurance recoverable on paid L&LAE
  2. Asset = net amt recoverable from reinsurers (balancing item)
  3. Liability = ceded reinsurance premium payable on paid L&LAE
  4. Liability = Provision for reinsurance
  5. Liability = Funds held by company under reinsurance treaties
  6. Liability = L&LAE
  7. Liability = UnearnedPremium
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7
Q

Part 3 footnotes defined & importance (3)

A
  1. Disclose top 5 provisional commission rates (where ceded premium is >50k)
  2. Primary might be using high commission rates for surplus relief to keep IRIS 2 (NWP/PHS) below 300%
  3. High provision commission rates will lower IRIS 2 BUT IRIS 2 will pop if LR is bad
  4. Is primary misusing reinsurance to mask high operating leverage?
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8
Q

Portfolio insurance

defined

reasons to use it

disadv

A

Primary gives PIF/liabilities to reinsurer + reinsurer gives primary discounted (less) premium

Reasons: a) exit LOB b) remove risk c) surplus relief

Disadv: costly – primary only receives a discounted premium b/c of uncertainty of risk being passed on

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9
Q

Fronting carrier

defined

scenario

when acceptable?

A

Insurer that cedes >75% of its book

scenario: When A is not authorized to do business in MO then fronting carrier B will write the business in MO & cede it to A

Acceptable when companies are related (i.e. intercompany cessions w/ affiliates OR cessions to joint pool)

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10
Q

How schedule F monitors solvency (3)

A

Tracks reinsurance transactions

Calculate reinsurance provision

Shows effect on balance sheet of removing all reinsurance protection (part 8)

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11
Q

Adv of provision for reinsurance calculation in schedule F to monitor solvency

A

Reinsurance provision is formula →hard to manipulate→ easy to compare across companies.

Penalizes unauthorized and authorized slow paying reinsurers

(Part 8) Shows effect on balance sheet of removing all reinsurance protection

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12
Q

Disadv of provision for reinsurance calculation in schedule F to monitor solvency (4)

A

Reinsurance provision is formula →no statistical basis for formula (20% cut off for slow pay)

Penalty for unauthorized and authorized slow paying reinsurers doesn’t account for financial strength rating

Doesn’t measure quality of reinsurer’s management

Doesn’t directly measure solvency

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13
Q

How can schedule F be improved to monitor solvency? (4)

A

Disclose details of reinsurance agreements

Include management input

Include reinsurer ratings

Replace 20% slow pay threshold w/ sliding scale

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14
Q

Certified reinsurer

defined

takes what into account (to addresses provison for reinsurance calculation disadvantage)?

provison for reinsurance 2 parts?

vs unauthorized reinsurer

A

Previously unauthorized but attained certification (legal authority) to do business in jurisdiction

Takes into account reinsurer financial strength (more strength→less provision for reinsurance)

2 parts = collateral deficiency + overdue reinsurance

vs unauthorized: lower reinsurance provison + can post less collateral

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15
Q

Considerations to certify reinsurer (5)

A
  1. Jurisdiction (location)
  2. Rating
  3. Regulatory history
  4. Fin pos – financial positon
  5. C&S Capital & Surplus
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16
Q

3 dates again of reinsurance recoverable begins (3)

A

Date recoverable is >50k AND entered into ledger as paid (used as default if no other date is specified)

Paid date

Reported date

17
Q

20% commission rate (commission payable)

A

Reinsurer owes primary 20% of ceded premium→PHS↑

18
Q

Q: calculate commission

GWP=100m

30% quote share

35% fixed ceding commission rate

A

primary pays reinsurer Ceded Prem = (100m*0.30) = 30M

Commision = 0.35P = 10.5M →reinsurer pays primary→PHS up

19
Q

Q: calculate commission

GWP=100m

30% quote share

35% provisional commission rate assuming 65%LR BUT LR turns out to be 80%

A

primary pays reinsurer Ceded Prem = (100m*0.30) = 30M

30M*0.35=10.5m→reinsurer pays primary→PHS up

30M*(0.80-0.65)=4.5m–>primary pays back reinsurer->PHS down

10.5M-4.5M = 6M

20
Q

Contingent commission

defined

included in commission payable?

A

Reinsurer pays primary commission depending on profit of reinsurance contract

Not included in ‘commission payable’ (to primary) bc depend on profit

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32
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33
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