TIA Section A - Odomirok 10

Question 1

What disclosures does the insurer need to make about unsecured reinsurance recoverables

Answer 1

3️⃣ If the recoverables from the reinsurer exceed 3% of surplus

📋 Disclose: Name/Paid losses billed but not yet collected, ceded reserves, ceded unearned premiums

Question 2

List some questions the actuary may have if the insurer has material credit risk exposure to a reinsurer (unsecured recoverable)

Answer 2

👮🏻Why wasn’t security provided?

💸 Are there concerns about the financial health of either the insurer or reinsurer?

🌪 Was the large amount of recoverables caused by a catastrophe?

🙍🏼‍♂️ Are all of the unsecured recoverables concentrated with one reinsurer?

Question 3

List two uses of the Disputed Balances note

Answer 3

🕵🏻‍♂️ Identify credit risk

🕵🏼 Identify insurers that try to over recover from reinsurers

Question 4

List some questions that the actuary may have about the disputed balances

Answer 4

🗣 What is the issue causing the disagreement?

👥 Is the disputed amount material either the reinsured or reinsurer?

⚖️ Are there legal options available?

Question 5

Reasons that users would be interested in the Reinsurance Assumed and Ceded note

Answer 5

💍 Identify situations where the insurer is engaging in reinsurance contracts with commissions designed to manipulate its surplus

🙅🏼‍♀️ Helps derive the impact to surplus if the policy(s) are cancelled

Question 6

List some questions that the actuary may have about the Uncollectible Insurance note

Answer 6

🤷🏼‍♀️ Why is the reinsurance uncollectible?

📑 Is there other outstanding recoverable that may also be uncollectible in the future for similar reasons?

🕰 How long had it taken the company historically to write off the uncollectible reinsurance that had been disclosed in the notes?

Question 7

Define commutations

Answer 7

Settlement between an insurer and reinsurer to discharge all remaining obligations

Question 8

Describe two ways in which commutations will distort the financial statements

Answer 8

💳 The payment from the reinsurer is a negative paid loss (income statement)

💸 The loss reserve is increased (balance sheet)

Question 9

Describe the accounting treatment of retroactive reinsurance

Answer 9

📃 The ceded reserves are recorded as a negative write-in item in the balance sheet

📈 Any gain is recorded as
•other income in the income statement
•special surplus in the balance sheet

Question 10

Required disclosures in the Notes about retroactive reinsurance

Answer 10

• Reserves transferred
• Consideration paid
• Paid losses reimbursed
• Special surplus generated
• The reinsurers involved

Question 11

Reason it is important to disclose retroactive reinsurance

Answer 11

Helps verify that the insurer is appropriately accounting for the retroactive reinsurance and to better understand its impact

Question 12

What do the Notes needs to disclose about reinsurance accounted for as a deposit

Answer 12

Include a schedule that shows the historical change to the deposit/liability balance since the inception of each contract

Question 13

What do the Notes need to disclose about Certified Reinsurer Rating Downgraded or Status Subject to Revocation

Answer 13

Discloses the impact if the collateral has not been received by the filling date

Question 14

What does the change in Incurred Loss and LAE note disclose

Answer 14

• Amount of the change
• Segments/lines that lead to change
• Reason for the change

Question 15

Two reasons that Premium deficiencies are rare

Answer 15

• Most policies charge sufficient premium to cover the expected losses and expenses
• A particular segment within a group that has a deficiency may be offset by the surplus of another statement

Question 16

Two ways to account for premium deficiency

Answer 16

• Establish a write-in liability

- Reflect as part of the UEPR

Question 17

What does the insurer need to disclose about premium deficiencies in the Notes

Answer 17

• The size of the deficiency

- Whether investment income was considered

Question 18

Provide some reasons why the actuaries should become familiar with the Discounting note

Answer 18

• Different companies use different discounting practices and the actuary will therefore need to know the details to make comparisons
• The use of non-tabular discounts is a sign that the regulator possibly may have solvency concerns about the insurer
• The actuary has to disclose and describe discounting in the SAO

Question 19

Two reasons that it is necessary to disclose the potential asbestos/environmental exposure

Answer 19

• The reserves have developed adversely over the last few decades
• There is a lot of uncertainty associated with the reserves

Question 20

What does the insurer need to disclose about the asbestos/ environmental exposure in the Notes

Answer 20

• Lines of business affected
• Nature of the exposures
• Reserving methodology

-Table that contains for each of the past 5 years:
Beginning loss and LAE reserves, Incurred Loss and LAE, Calendar year payments for losses and LAE, Ending Loss and LAE reserves

• Pure IBNR

Question 21

What is described in the Summary of Significant Accounting Policies note

Answer 21

• The source of the accounting rules used to construct the Annual Statement (typically the NAIC Accounting Practices and Procedures Manual)
• Any exceptions that were made to the above rules and basis of the exceptions
• Additional detail on the insurer’s significant accounting policies

Question 22

Define Type 1 (Recognized Subsequent Events)

Answer 22

Events that provide additional detail on conditions that existed at the accounting date

Question 23

How should Type 1 events be accounted for

Answer 23

These events should already be reflected in the financial statements, as the statements are meant to include all known information about the conditions that existed at the accounting date, as if the dates the statements are issued. Disclosure will only be needed in the event that it would prevent the statements from being misleading.

Question 24

Define Type 2 (non-recognized subsequent events)

Answer 24

Events that did not exist at the accounting date

Question 25

How should Type 2 events be accounted for

Answer 25

These events should not be included in the financials. They should however be described in the note if they could have a material impact to the financials of the firm.

Question 26

What do the Notes disclose about inter company pools

Answer 26

• Members of the pool
• Lead company
• Pooling percentage of each participant

Question 27

What do the Notes disclose about Structured Settlements

Answer 27

• Total amount of the structured settlement payments for which the insurer could be held liable
• In the event where the remaining payments from a single life insurers exceeds 1% of surplus, the name of the life insurer and associated remaining payments

Question 28

What do the Notes disclose about High Deductible policies

Answer 28

• the reserve credit that the insurer has recognized for the unpaid claims
• The amount billed but not yet collected for the paid claims