Odomirok CH. 18 (IEE)

Question 1

When is the IEE filed?

Answer 1

4/1

Question 2

What is the main purpose of the IEE?

Answer 2

To provide a deeper view of a companys profitability by showing components of statutory profit by LOB on a net and direct basis

Question 3

3 parts of the IEE

Answer 3

Part I – allocation of other UW expenses within Part 3 of U&IE

Part II – allocate pretax profit by LOB on net basis

Part III – allocate pretax profit by LOB on direct basis

Question 4

What do regulators use the IEE for?

Answer 4

monitor financial health, trends by LOB, rate adequacy

Question 5

What do stakeholders use the IEE for?

Answer 5

ID lines that are profitable and those that aren’t

Question 6

What do investors use the IEE for?

Answer 6

company’s future growth, growth in unprofitable lines is undesirable

Question 7

What do actuaries use the IEE for?

Answer 7

benchmarking company performance by LOB, source of premium, loss, and expense data

Question 8

How does the IEE take the U&IE Part 3 and go one step further?

Answer 8

further allocates Other UW expenses into..

Acquisition, field supervision, and collection expenses

General expenses

Taxes, licenses, and fees

Question 9

Differences between the IEE and the U&IE

Answer 9

IEE is in thousands not whole dollars

IEE has three columns under UW expenses, rather than one

IEE operating expenses end with line 25, total incurred, do not include unpaid, related to uninsured plans, or total paid

Question 10

Pre-tax profit excluding investment gain formula

Answer 10

EP – PH Dividends – Incurred Loss – DCC Incurred – A&O Incurred – Commissions & Brokerage – Taxes, Licenses, Fees – Other acquisition – general expenses incurred + other income less other expenses

Question 11

Total Investable Assets (TIA) formula

Answer 11

L + LAE + UEP + ceded reinsurance premiums payable + surplus – agents balances (2 year averages)

Use only current year NII in calculating this ratio NII / TIA

need to allocate surplus and ceded premiums payable 1st

Question 12

How are ceded premiums payable allocated?

Answer 12

based on distribution of ceded written premium by line (done separately for 2 years, and final is averaged) =

Ceded WP (LOB) / Total Ceded WP x Total ceded reinsurance premiums payable

Question 13

Surplus Ratio

Answer 13

m(Surplus) / [m(L + LAE) + M(UEP) + NEP]

Question 14

Surplus by LOB

Answer 14

Overall Surplus Ratio x [m(L + LAE) + M(UEP) + NEP] by LOB, insert this in the investment allocation equation (TIA)

Question 15

FAIT

Answer 15

M(L + LAE) + M(UEP) x (1- prepaid ratio) + M(RE) - M(AB)

Question 16

Prepaid expense ratio

Answer 16

calculated separately, by LOB

Net acquisition expenses / net WP

Net acquisition expenses = commissions and brokerage incurred + taxes, licenses, fees incurred + other acquisition, field supervisions and collection incurred + ½ x general expenses incurred

Question 17

How is part 3 different from part 2?

Answer 17

Very similar to part 2, but excludes any investment gains, because those are strictly on a net of reinsurance basis
shown on a DIRECT BASIS

Question 18

Interrogatories for IEE

Answer 18

Shown before the 3 parts

Most important is note #4

Are there any items requiring special comment?

Are items allocated in Parts II and II using methods not defined in the NAIC instructions? If yes, explain.