Flashcards in C - CIA Premium Liabilities Deck (17):
Liability for claims incurred on or before the balance sheet date
E(costs) from unexpired portion of in-force contracts (ie. incurred after valuation date)
other liabilities related to premium development (retro-rating, CONTINGENT PROFIT COMMISSION)
-future claims and adj. exp
- E(reinsurance costs) on contracts not yet underwritten
Unearned Premium Reserve
Portion of WP associated with exposure remaining on unexpired portion of conract
3 responsibilities of AA in terms of the Premium Liabilities.
1) value gross and net premium liabilities
2) assess need for a premium deficiency reserve
3) assess maximum DPAE
Deferred Policy Acquisition Expense (DPAE)
asset recognizing prepaid acquisition expense for unexpired portion of policy
paid upfront when policy is issued but not expensed until premium is earned in the income statement.
Asset on balance sheet
Unearned (Reinsurance) Commission.
arise from commission revenue on reinsurance ceded premium.
Reinsurance commission from the unexpired portion of the policy.
Is carried as a liability.
Equity in the gross Unearned Premium
Equity in the net Unearned Premium
--equity in the gross Unearned Premium--
amount by which GROSS UPR exceeds GROSS PREMIUM LIABILITIES
GROSS UPR - GROSS PREMIUM LIABILITIES
--equity in the Net Unearned Premium--
(AKA : Net Max DPAE)
+ unearned (reinsurance) commission
+ Premium Deficiency
- Net Premium Liabilities
Usually calculated on an "All Lines Combined" basis, unless significant change in mix of business.
Provision determined by AA when EQUITY IN NET UPR is negative
Amount which, when added to NET UPR and UNEARNED (REINSURANCE) COMMISSIONS, makes an appropriate provision for future costs arising from the unexpired portion of in-force policies.
Premium deficiency exists when NET premium liabilities exceeds the sum of NET UPR + Unearned (Reinsurance) Commission
What happens if carried DPAE >= Equity in UPR (Max allowable DPAE) ?
What happens if the Equity in UPR (Max allowable DPAE) is negative ?
DPAE is reduced to Max DPAE
DPAE is reduced to 0
Premium Deficiency is required
Types of adjustments to historical experience that AA must account for when assessing projected LRs for premium liabilities
1) Loss Trends
2) expected legislative changes
3) recent court decisions
4) Change in mix of business
5) Rate changes
6) CAT and large losse loadings
8) Policy term
Maximum Deferrable Policy Acquisition Expenses (Max DPAE)
(AKA Equity in Net UPR)
Amount by which NET UPR + Unearned (reinsurance) commission exceeds NET POLICY LIABILITIES in connection with unearned premium.
Discuss the treatment of LAE by the AA in their estimation of losses
AA may include ALAE (ULAE) in the estimation.
If they don't, an estimate of future ALAE (ULAE) would be derived by applying an approach similar to the expected loss approach
1) What are Maintenance Expenses?
2) Discuss the inclusion of Maintenance Expenses to reflect the future cost of servicing the policies in-force.
1) expenses associated with :
-change in reinsurance contracts
expressed as a ratio of UPR
evaluated as a ratio of general expenses.
They vary by LoB. To determine at what extent, consider:
a) availability of expense info by LoB
b) distribution model of insurer
c) characteristics of portfolio (2yr contracts)
Elements upon which the MfAD should vary by
Selected MfaD should vary :
--between premium liabilities and claim liabilities
--among AccYrs, PolYrs, UWYrs
2 examples of premium development to be evaluated as part of the premium liabilities.
1) premium development on retro-rated reinsurance ceded
2) Audit Premiums where final prem is unknown until coverage expire.
3) Premium development on reinsurance assumed
Components in the calculation of premium liabilities
Expected losses and LAE in relation to Unearned Premium
Unearned Premium Reserve
Expected Reinsurance Costs
Premium Adjustments for Swing Rated policies
Describe whether the cie's provision for policy liabilities shown in Annual Return can be different from AA's estimated policy liabilities
YES they could be different
But cie's provision must be greater than AA's estimate.
AA will also need to provide explanation on material differences.