TIA Section A - Odomirok 10

Question 1

Under what circumstances does an insurer need to make disclosures about unsecured reinsurance recoverables

Answer 1

3️⃣ If the recoverables from the reinsurer exceed 3% of surplus

Question 2

What disclosures does the insurer need to make about unsecured reinsurance recoverables

Answer 2

📋 Name/Paid losses billed but not yet collected, ceded reserves, ceded unearned premiums

Question 3

List some questions the actuary may have if the insurer has material credit risk exposure to a reinsurer

(unsecured recoverable)

Answer 3

👮🏻Why wasn’t security provided?

💸 Are there concerns about the financial health of either the insurer or reinsurer?

🌪 Was the large amount of recoverables caused by a catastrophe?

🙍🏼‍♂️ Are all of the unsecured recoverables concentrated with one reinsurer?

Question 4

List two uses of the Disputed Balances note

Answer 4

🕵🏻‍♂️ Identify credit risk

🕵🏼 Identify insurers that try to over recover from reinsurers

Question 5

List some questions that the actuary may have about the disputed balances

Answer 5

🗣 What is the issue causing the disagreement?

👥 Is the disputed amount material to either the reinsured or reinsurer?

⚖️ Are there legal options available?

Question 6

Reasons that users would be interested in the Reinsurance Assumed and Ceded note

Answer 6

💍 Identify situations where the insurer is engaging in reinsurance contracts with commissions designed to manipulate its surplus

🙅🏼‍♀️ Helps derive the impact to surplus if the policy(s) are cancelled

Question 7

List some questions that the actuary may have about the Uncollectible Insurance note

Answer 7

🤷🏼‍♀️ Why is the reinsurance uncollectible?

📑 Is there other recoverable that may also be uncollectible for similar reasons?

🕰 How long had it taken the company to write off the uncollectible reinsurance that had been disclosed?

Question 8

Define a commutation

Answer 8

Settlement between an insurer and reinsurer to discharge all remaining obligations

Question 9

Describe two ways in which commutations will distort the financial statements

Answer 9

💳 The payment from the reinsurer is a negative paid loss

💸 The loss reserve is increased

Question 10

Describe the accounting treatment of retroactive reinsurance

Answer 10

📃 The ceded reserves are recorded as a negative write-in item in the balance sheet

📈 Any gain is recorded as
* other income in the income statement
* special surplus in the balance sheet

Question 11

Required disclosures in the Notes about retroactive reinsurance

Answer 11

• Reserves transferred
• Consideration paid
• Paid losses reimbursed
• Special surplus generated
• The reinsurers involved

Question 12

Reason it is important to disclose retroactive reinsurance

Answer 12

Helps verify that the insurer is appropriately accounting for the retroactive reinsurance and to better understand its impact

Question 13

What do the Notes needs to disclose about reinsurance accounted for as a deposit

Answer 13

Include a schedule that shows the historical change to the deposit/liability balance since the inception of each contract

Question 14

What do the Notes need to disclose about Certified Reinsurer Rating Downgraded or Status Subject to Revocation

Answer 14

Discloses the impact if the collateral has not been received by the filling date

Question 15

What does the change in Incurred Loss & LAE note disclose

Answer 15

• Amount of the change
• Segments/lines that lead to change
• Reason for the change

Question 16

Reasons the Change in Incured Loss & LAE note is important:

Answer 16

• Changes can distort the current year’s underwriting income
• Recurring material changes may indicate that there are issues with the reserving process.

Question 17

Two reasons that Premium deficiencies are rare

Answer 17

• Most policies charge sufficient premium to cover the expected losses and expenses
• A particular segment within a group that has a deficiency may be offset by the surplus of another segment

Question 18

Two ways to account for premium deficiency

Answer 18

• Establish a write-in liability
• Reflect as part of the UEPR

Question 19

What does the insurer need to disclose about premium deficiencies in the Notes

Answer 19

• The size of the deficiency
• Whether investment income was considered

Question 20

What does the insurer disclose about discounting in the notes:

Answer 20

• Whether it uses tabular discounting
• Basis & assumptions supporting tabular discounts
• Whether it uses nontabular discounting
• Basis & assumptions supporting nontabular discounts
• Whether there has been a change of assumptions used to calculate the discount.

Question 21

Provide some reasons why the actuaries should become familiar with the Discounting note

Answer 21

• Different companies use different discounting practices
• The use of non-tabular discounts is a sign that the regulator may have solvency concerns about the insurer
• The actuary has to disclose and describe discounting in the SAO

Question 22

Two reasons that it is necessary to disclose the potential asbestos/environmental exposure

Answer 22

• The reserves have developed adversely over the last few decades
• There is a lot of uncertainty associated with the reserves

Question 23

What does the insurer need to disclose about the asbestos/ environmental exposure in the Notes

Answer 23

• Lines of business affected
• Nature of the exposures
• Reserving methodology
• Table that contains 5 years of data
• Pure IBNR

Question 24

What does the 5yr table from the asbestos/ environmental exposure disclosure mention:

Answer 24

Beginning reserves/ Incurred loss/ CY payments / Ending reserves * Pure IBNR.

Question 25

What is described in the Summary of Significant Accounting Policies note

Answer 25

• The source of the accounting rules used to construct the Annual Statement
• Any exceptions that were made to the above rules and basis of the exceptions
• Additional detail on the insurer’s significant accounting policies

(source: typically the NAIC Accounting Practices and Procedures Manual)

Question 26

Define Type 1 (Recognized Subsequent Events)

Answer 26

Events that provide additional detail on conditions that existed at the accounting date

Question 27

How should Type 1 Events be accounted for

Answer 27

These events should already be reflected. Disclosure only be needed if it would prevent the statements from being misleading.

Question 28

Define Type 2 (non-recognized subsequent events)

Answer 28

Events that did not exist at the accounting date

Question 29

How should Type 2 events be accounted for

Answer 29

These events should not be included in the financials. They should however be described in the note if they could have a material impact

Question 30

What do the Notes disclose about intercompany pools

Answer 30

• Members of the pool
• Lead company
• Pooling percentage of each participant

Question 31

What do the Notes disclose about Structured Settlements

Answer 31

• Total amount of the structured settlement payments for which the insurer could be held liable
• If the remaining payments from a single life insurer exceeds 1% of surplus, the name of the life insurer and associated remaining payments

Question 32

What do the Notes disclose about High Deductible policies

Answer 32

• the reserve credit that the insurer has recognized for the unpaid claims
• The amount billed but not yet collected for the paid claims