TIA Section A - Odomirok 18

Question 1

List the three parts of the IEE

Answer 1

• Part 1: Allocation of other underwriting expenses
• Part 2: Allocation of pretax profit by line, on a net basis
• Part 3: Allocation of pretax profit by line, on a direct basis

Question 2

When does the IEE need to be filed

Answer 2

4/1 following the Annual Statement date

Question 3

List some uses of the IEE

Answer 3

• Regulators: monitor the financial health of the insurer. It may indicate trends by line of business may threaten the solvency of the entire insurer
• Regulators: monitor rate adequacy
• Stakeholders: determine the lines that were profitable and use this knowledge to help make business decisions
• Investors: help determine how much to invest in the insurer
• Actuaries: source of premium, losses and expenses for benchmarking

Question 4

What categories are expenses divided into in Part 1 of the IEE

Answer 4

• LAE
• Other Underwriting Expenses (further allocated into Acquisition, Field Supervision and Collection Expenses/ General Expenses/ Taxes, Licenses and Fees)
• Investment Expenses

Question 5

What categories does the IEE divide the investment gain into

Answer 5

• Investment Gain on Funds Attributable to insurance transactions
• Investment Gain Attributable to capital and surplus

Question 6

What is surplus allocated proportional to

Answer 6

Mean net loss and LAE reserves + Mean UPR + EP for the year

Question 7

Equation for Investment Gain Ratio

Answer 7

= Net Investment Gain
___________________
Total Investable Assets

Where Total Investable Assets = Mean net loss & LAE reserves + Mean net unearned premium reserves + Mean ceded reinsurance premiums payable + Mean policyholders surplus - Mean agents surplus

Question 8

Equation for investment gain on funds attributable to insurance transactions

Answer 8

= Investment gain ratio * Funds attributable to insurance transactions for the line

Where the funds attributable to insurance transactions for each line:

= Mean net loss & LAE reserves + Mean UPR * [1-(prepaid expenses/written premium)] - (Mean net agents balances - ceded reinsurance premium payable)

Question 9

Formula for Prepaid Expenses

Answer 9

Commission & Brokerage expenses incurred + Taxes, licenses & fees incurred + Other acquisition , field supervision & collection expenses + (1/2)* General expenses incurred

Question 10

Formula for Total Investment Gain

Answer 10

= company’s investment gain ratio * investable funds associated with the LOB

Where investable funds associated with the LOB = Mean net loss & LAE reserves + Mean UPR - Mean net agents balances + Ceded reinsurance premiums payable + Allocated PHS