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
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).