B3. Odomirok 21 Flashcards Preview

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Flashcards in B3. Odomirok 21 Deck (9):

List 2 reasons measurement tools are very useful

1. The results of a tool may indicate the need for further investigation (either via evaluation of other tools, or inquiry of management)
2. When multiple tools are used together over a period of several years, they can provide an early warning of "high risk" insurers


The statutory financial statements provides what 2 views of financial health of the insurer:

-Balance sheet strength: ensure that the insurer can pay its claims
-Earnings potential


How can the accident year loss and LAE ratios help regulators assess the adequacy of unearned premium reserves.

If ratios exceed 100%, it is possible that the unearned premium is insufficient to cover future losses that will emerge.


List some financial statements that can be used to assess loss reserve adequacy

-Five year historical data exhibit: shows how losses have developed over time
-Notes to the financial statements: includes management's discussion about changes in the incurred losses.
-Schedule P, Parts 2-4: provides data to perform tests of reserve adequacy
-Schedule F, Part 3 (and Notes): loss reserves are net of reinsurance, so the reinsurance collectability does have an impact on reserve adequacy.


What may large growth in written premium during a soft market (underwriting cycle), as indicated by the Five-Year Historical Data exhibit suggest:

The insurer may be making concessions on rate or commission.


What factors should the regulators consider regarding the investable assets when considering the balance sheet strength:

-Changes in investable asset values and yields on invested assets should be monitored
-If the insurer generally invests in riskier assets than the industry average, the regulators should assess the effectiveness of their hedging practices


Where can a user of the financial statements see increased exposure to catastrophic/ large events:

Writings by state in Schedule T; or by line of business in the Underwriting and Investment Exhibit. General interrogatories, Part 2 provides details about the probable maximum loss, and the provisions that had been implemented to protect the company against such a loss


Where can a user of the financial statements see deteriorating loss ratios:

Five-Year Historical Data exhibit (calendar year) or Schedule P (accident year).


Provide some examples of poor decision making that have lead to insolvencies:

-little or no reinsurance
-insufficient reinsurance for the amount of risk
-very rapid premium growth
-significant adverse development
-inadequate pricing
-serious data problems