IEE - odom chapter 18 (Easy Points) Flashcards

Question

Answer 1

A

Recall, annual statement combines all LOB in aggregate. It gives you the overall profitability of an insurer but lacks the ability investigate at a granular level.

IEE can provide details about the profitability by LOB. It is a separate document to the annual statement

Answer 2

A

Can be very helpful when making decisions about an individual LOB.

Is this LOB profitable?
Does it make sense to grow this LOB?
Do we need enter into remediation to fix unprofitability.

Answer 3

A

PART 1: allocation of UW Expenses
Part2: Allocation of pretax profit by line, on a NET basis
Part 3: Allocation of pretax profit by line, on a GROSS basis

Answer 4

A

Operating expenses are allocated to different categories.

Each appearing in a separate row.

Expenses are allocated into the following categories (columns):
1) LAE
2) Other UW Expenses:
- Acquisution, field supercision & Collection expenses
- General Expenses
- Taxes , Licesnces, Fees
3) Investment Expenses

Answer 5

A

Pre-tax Profit =
+ Premiums Earned
- Dividends to policyholders
- Incurred Loss
- DCC & AAO expenses Incurred
- Commission & brokerage expenses Incurred
- Taxes, licenses and fees incurred
- Other acquisitions, field supervision and collection expenses incurred
- General expenses Incurred
+Other income less Other expenses
+ Investment Gain

Investment gain needs to be allocated to LOB to generate total profit

Answer 6

A

Investment Gain is tricky to allocate because it is not allocated by LOB.

IEE provides a way to allocate these items (that are more difficult to allocate) to LOBs

Answer 7

A

The paper comes up with an approach to allocate the total investment gain to each individual line

should be able to calculate this (will be tested)

Answer 8

A

Investment Gain Consists of:

1) Investment Gain of funds attributable to insurance transactions (funds company gains from participating in the business of insurance)
2) Investment Gain of funds attributable to Capital and Surplus (money thats coming owners of the insurance company)

KNOW HOW TO DERIVE THESE

Answer 9

A

Step 1: Allocate Mean Surplus to line

Surplus is allocated in proportion to the line’s:
1) MEAN net L+LAE reserves (Source: balance sheet)
2) MEAN Net UEPR (Source: balance sheet)
3)* EP for the year (Source: Income Statement)

The formula assumes that numbers in the balance sheet change uniformly over the year (taking the midpoint).

*No need to take average of the EP

Answer 10

A

Balance Sheet provides values at different points in time (snapshots of time) so for for reserves we want to bring in the AVERAGE AMOUNT HELD TRHOUGHOUT THE YEAR

Answer 11

A

Step 2: Allocate Ceded Reinsurance Premiums PAYABLE to Line

If payable is not given, use Ceded WP.

Ignore if it is not given you for exam purposes

Answer 12

A

Step 3: calculate the IGR (Investment Gain Ratio)

= (Net Investment Gain) / (Total investable assets)

This is going to be a fixed factor applied to ALL LOBs

Net investment gain = Net Investment income + Net investment Gains

The gains are BEFORE the Capital gains tax is subtracted. GROSS OF CAPITAL GAINS TAX

Answer 13

A

Total investable assets =
+Mean Net L+LAE Reserves
+ Mean net UEPR
+ Mean ceded reinsurance premiums PAYABLE*
+ Mean PHS
- Mean agents’ balances (AB)**

Everything can be pulled from balance sheet

*Money the IC has to pay TO the RC. Because IC is holding this amount, this can be reinvest-able

**Money due to the IC, IC is NOT holding this amount which cannot be invest-able

Answer 14

A

Investment Gain of funds attributable to insurance transactions

= IGR x Funds attributable to insurance transactions for LOB (FATIT)

Answer 15

A

FATTIT=
mean net L+LAE reserves
+ Mean Net UEPR *
x ( 1 - (Prepaid Expenses) / (WP) )
- (Mean AB - Mean Ceded Reinsurance Premium Payable)**

Expenses on UEPR in this case are held gross of any prepaid expenses but recall, these have already been paid out to RC (Acquisition costs [Remeber DAC?])

**Explained in card 13: Total Investable Assets Calc

Answer 16

Study These Flashcards

A

Prepaid acquisition expenses = Commissions & brokerage + Taxes, licences and fees +
Other acquisition expenses + 0.5 * General expenses

Answer 17

Study These Flashcards

A

what is it?

series of questions that the IC must respond to that can provide clarity to users on information that may not be captured in the rest of the annual statement.

Identify areas that need further regulatory review for users to make an opininion (I.E, is there sufficient reinsurance)

Answer 18

Study These Flashcards

A

Consist of 3 parts:
1) Common
2) P&C

Answer 19

Study These Flashcards

A

General questions applicable to all insurance companies not P&C only

Answer 20

Study These Flashcards

A

Gives us information about:

operations
business practices
types of internal / external controls in place

consists of a few sections: general, board of directors, financial, investment, other

Answer 21

Study These Flashcards

A

Asks questions such as:

suspension of licenses (lacks internal discipline and user will need to investigate)
latest regulatory financial exams (results are hopefully favorable)
excessive sales commission levels (excessive = bad, sacrificing expense ratio at the expense of growth)

Answer 22

Study These Flashcards

A

criteria to get approval of board

Answer 23

Study These Flashcards

A

Were financials developed using accounting other than SAP?

Other Qs regarding:
loans made to senior leadership and other stakeholders
assets the insurer was obliged to transfer to another party were not reported as liabilities
assessments other than guarenty fund assessments
amounts due from affiliates

Answer 24

Study These Flashcards

A

To help understand if the insurer has financial obligation that were not reported in the AS
or is the insurer has been providing significant financial support to its stakeholders/ affiliates

IEE - odom chapter 18 (Easy Points) Flashcards

(25 cards)