Additional Flashcards
(119 cards)
1
Q
Additional strength of the Us regulatory system
A
formulaic standards such as IRIS tests and RBC may reduce forbearance since they have required action levels
2
Q
RBC vs Rating Agency capital requirements
A
RBC does not consider reserve adequacy
RBC can trigger regulatory intervention, whereas financial rating cannot
Rating agency capital requirements are very tailored to the individual insurer being evaluated
3
Q
Risk Management Agency (RMA)
A
- created by USDA to operate and manage federal crop insurance corp (FCIC)
- assesses how crop coverage is performing and whether any changes need to be made. Help monitor and control risks
- RMA will aggregate all data available to be able to price accurately
4
Q
DIC policy
A
a policy that covers on “all risks” basis to fill gaps in the insured’s underlying property coverage
5
Q
AOS is used by
A
regulator and board of directors
6
Q
Why should commutation agreements be disclosed
A
because some exhibits will be distorted by a commutation
7
Q
Insurance Advisory Organization purposes
A
- providing prospective loss costs used in rate filings
- developing rating systems
- lobbying
- collecting and tabulating statistics
- filing support
8
Q
Goal of the “unfair” act
A
to identify methods of unfair competition or trade practices in state laws to reduce the amount of federal intervention
9
Q
limitations of schedule P to assess reserve adequacy:
A
- judgements/selections involved in how it is assembled
- segmentation may be different than what is necessary
- commutations can distort triangles
- net of reinsurance: may be difficult to see impacts of various agreements
- only shows 10 years worth of data: not good for long tail
10
Q
Bright Line Indicator test
A
if 10% of loss and lae reserves is greater than the difference between adjusted surplus and company action level capital and surplus, regulators will need an explanation of why the actuary doesn’t think there exists MAD
11
Q
currency risk is NOT
A
an aspect of insurance risk
12
Q
sections of 5 yr historical data exhibit
A
WP (by 5 LOBs) Balance sheet RBC components Operating Percentages (loss, lae, und exp, profit ratios) One and two year loss development
13
Q
Unrealized capital gains cause
A
DTA/DTL
14
Q
negative income will
A
erode surplus
15
Q
What is updated retroactively for pooling % changes?
A
Schedule P, but not Schedule F
16
Q
long tail lines should maintain lower
A
IRIS 1 and 2 ratios
17
Q
Net DTA is an
A
admitted asset
18
Q
fair value discount rate
A
risk free rate + illiquidity premium
19
Q
far value risk cost of capital
A
cost of capital - discount rate
20
Q
AOS does not discuss
A
RMAD
21
Q
Revenue offset
A
adds back into income those prepaid acquisition expenses which have not yet been earned buy were expensed
22
Q
Reserve discounting adjustment (fair value)
A
needed because tax accounting calculates income using discounted reserves, when statutory accounting uses undiscounted reserves
23
Q
Business of Insurance definition is based on
A
Royal Drug case of 1979
24
Q
Duties of regulators
A
license insurers financial reporting review of insurers periodic examinations impose sanctinos
25
Equity in UEPR
UEPR * prepaid acquisition cost %
26
Equity in Undiscounted Reserve
Undiscounted Reserve * (1- disc factor)`
27
An omission, understatement, or overstatement in a work product is material if
it is likely to affect the intended user's decision making process or reasonable expectation
28
In a commutation, surplus for the primary insurer will decrease if
the price is less than the ceded reserves
29
IMF FSAP
financial sector assessments programs is an international in-depth look at regulation, especially on group community
30
An improvement to schedule F from the regulator's perspective
to show the reinsurance company's agency rating. this would help regulators better understand any insolvency concerns with the reinsurer or potential uncollectibility issues
31
increased risk increases
surplus
32
RBC requirements attempt to
individualize minimum capital requirements for each insurer
33
RBC does not take into account
rate or reserve adequacy
34
In 2 year operating ratio, subtract this out from the expense ratio
other income
35
Reasons for codification of SAP
- allow regulators and NAIC to aggregate financial information more easily
- financial information is comparable between companies
36
ceding insurers CANNOT take credit for recoverables in dispute with
an affiliate
37
tabular discount is for
specific claims. does not apply to LAE
38
required table in notes for asbestos is repeated 3 times for
direct, assumed, net
39
How to adjust for surplus aid
multiply PHS by (1-surplus aid ratio)
40
data testing auditor should be retained by
the insurance company
41
schedule P reconciliation is by
AY and LOB
42
realized capital gains are NOT
an asset
43
commutation price increases the primary insurer's
ceded paid loss
44
Sherman Antitrust Act prompted
some states to pass similar laws
45
gross agents' balances are analyzed in IRIS because
they usually cannot be converted to cash in the event of liquidiation
46
loss sensitive discount is calculated using
base RBC
47
what premium to use to measure excessive prem growth
direct and assumed from non-affiliates
48
excessive premium growth is added when
after loss concentration factor
49
most common coverage insured by RRGs
medical malpractice
less avialable, higher premiums, opportunities for diversification of policy terms
50
Surety Description
- insurance provides security to a 3rd party
- ensures construction firm will complete project
- principles may require construction firms obtain surety contracts from A rated insurers
51
why are guaranty funds more efficient for the economy/society
insureds do not need to put away resources to pay for claims in the event that an insurer is unable to pay
52
realized capital gains are NOT included in the
II ratio
53
If IRIS ratio 11 is unusual,
develoment needs to be subtracted from ratio 5 (operating)
54
investment gain ratio
use 1 company ratio for all LOBs
55
unsecured recoverables cannot be
negative
56
triangles in parts 2-4 of schedule P do not include
A&O
57
can break down part c of AOS into
total carried
excluded by opinion
covered by opinion
58
2 times when GAAP is more conservative
retroactive reinsurance: surplus benefit is deferred
structured settlement: SAP allows for claims to still be closed if release of liability is not signed. GAAP treats it like reinsurance contract
59
GLB
Graham Leach Bliley Act
60
GLB act addressed
issue of state vs federal regulation
61
GLB prohibits state actions that
would prevent bank-related firms from selling insurance on same basis as insurance producers
62
GLB prohibits national banks from
forming subsidiaries to underwrite insurance. however, can arrange financial holding companies to create insurance affiliates
63
GLB promotes information sharing among banks and insurance affiliaites by
requiring banks to disclose information sharing policies and practices
64
NAIC producer licensing model act (result of GLB)
compels states to facilitate insurance producers' ability to operate in more than 1 state
65
deviations under traditional ratemaking are usually applied at class level,
but deviations under price optimization can be applied at policy level
66
Schedule P is presented __ of paid S&S and possibly unpaid S&S
net
67
Dividends to policyhohlders need to be added to
LR
68
audit responsibilities
report any deficiencies of internal controls
69
difficulties in reconciling to schedule P
different accounting for S&S
only contains 10 year of data
differnet breakouts for states
70
example of NAIC protecting public interest
prepares special reports on insurance issues such as redlining and auto competition
71
example of NAIC promoting competitive markets
model laws, regulators, and guidelines provide uniformity and reduce compliance expenses
72
example of NAIC promoting fair and equitable treatment of consumers
complaints database system
73
example of NAIC promoting solvency
databases to help regulators track solvency
74
example of NAIC supporting and improving state regulation
accreditation program
75
agents' balances are subtracted from investable funds because
the insurer does not possess the money and therefore cannot invest it
76
apply the long duration UEPR tests how
annual basis for 3 recent years and aggregate for prior
77
if price optimization can be proven to be nondiscriminatory
it could have differentiation, which would provide more accurate rates reflecting true cost of risk transfer
78
reinsurers with higher financial ratings may be able to
charge more premium to primary insurer
79
most reinsurers are not in the US, so
ratings can provide an idea of financial strength
80
exclusive WC state funds are a monopoly, which
limits compeition
81
include cpaital gains tax in
net income
82
SAP recognizes acquisition costs immediately, but
GAAP defers to match earning of premium
83
if actuary only gives a range and no point estimate, the AOS
will have N/A in the point estimatie row
84
scope: filing is with
the state DOI
85
Scope: provider of data should be
a company officer
86
amount of reinsurance recoverables on paid losses is not
on the SAO or AOS
87
policyholder surplus can be found
in exhibit B of the SOA
88
NO class 1 bonds are included in
asset concentration
89
only non government class 1 bonds are included in
bond size factor
90
items in numerator for 2 year expense ratio
uw exp + write ins - other income
91
items in numerators for 2 year loss ratio
losses and lae + policyholder dividends
92
r0 components
directly owned alien affiliates
off-balance sheet items
investments in insurance subsidiaries
93
r1 components
```
bonds (bond size adj)
mortgage loans
LIHTC
miscellaenous assets (cash and admitted coll loans)
working capital finance
asset concentration
```
94
r2 components
```
stocks
parent/holding company
non gov money market
real estate
other long term investments
receivables for securities
agg write ins for isnurance
asset concentration
```
95
r3 components
reinsurance recoverable (1/2)
health credit
non-invested assets
96
Risk retention act of 1981
enabled companies to form their own risk retention groups to spread and assume their products and completed operations exposure
97
risk retention act permitted groups lincesed in one state
to be permitted to operate in any other
98
terrorism insurable risks criteria met
losses definite and measurable
| losses not catastrophic (geographically)
99
terrorism insrable risks criteria unmet
sufficiently large number of insures to make losses reasonably predictable
losses must be fortuitous or accidental
100
total recoverables from a resinrer also include
UEPR associated with ceded premium and contingent commissions owed by reinsurer
101
disadvantage of profit in IEE
relies on allocating surplus to line, which is an artificial allocation
102
surveillance expenses are
DCC
103
3 types of discount rates the actuary could consider using
risk free rate
anticipated return on a selected asset portfolio
discount rate requested by another party
104
subtract beat payments when
calculating regular taxable income
105
BEAT tax is currently
10% UNTIL 2025
106
purpose of BEAT tax
to prevent insurers from avoiding US tax by transferring earnings to a related foreign entity
107
credit risk should not be
included in risk transfer
108
gain/loss for commutations is
underwriting income
109
what is recorded is deposit accounting total losses are valued upwards
interest expense
110
recoverables in accounting treatment of retroactive reinsurance
contra liability
111
consideration paid for retroactive reinsurance
reduces asses
112
payment in run-off accounting
paid loss
113
if the payment is less than the reserves transferred in a runoff agreement
decrease in incurred losses
114
example of NAIC protecting public interest
prepares special reports on insurance issues such as redlining and auto competition
115
example of NAIC promoting competitive markets
model laws, regulations, and guidelines promote uniformity and reduce compliance expenses
116
example of NAIC facilitating fair and equitable treatment of insurance consumers
keeps compliant database system which contains info about complaints made against insurers on a state or national basis
117
example of NAIC promoting the reliability, solvency, and financial solidity of insurance institutions
maintain computerized databases to help regulators track insurers' financial solvency
118
example of NAIC supporting and improving state regulation of insurance
accreditation program to promote consistent, effective regulation across all states
119
Most frequent contributors to insurer insolvency
```
Rapid premium growth
Inadequate rates/reserves
Unusual expenses
Lax controls over agents
Uncollectable Reinsurance
Fraud
```
