Exam 6U Fall 2025 > NAIC SSAPs > Flashcards

NAIC SSAPs Flashcards

(48 cards)

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1
Q

Define prospective reinsurance

A

reinsurance that provides coverage for future losses on insurable events

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2
Q

Define retroactive reinsurance

A

reinsurance that provides coverage for insurable events that have already occurred (ex: long-term disability reinsurance)

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3
Q

Describe prospective reinsurance accounting (according to SAP)

A

if there is a claim then loss reserves increase

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4
Q

Describe retroactive reinsurance accounting (according to SAP)

A
  • if there is a claim then loss reserves do not increase
  • the claim amount is recorded as a write-in liability
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5
Q

Describe how premiums are treated by ceding and assuming insurer in deposit accounting

A
  • ceding company records premium paid as a deposit (asset)
  • assuming company records premium received as a liability
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6
Q

Describe how losses are treated by ceding and assuming reinsurer in deposit accounting

A

Ceding company
- records unpaid losses as a non-reserve liability
- records loss payments received from the assuming company as reductions in the deposit asset

Assuming company:
- records loss payments to ceding company as reduction in the liability

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7
Q

Identify an advantage of reinsurance accounting over deposit accounting for the ceding company

A

Reinsurance accounting provides relief to the ceding insurer by reducing net losses

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8
Q

Identify an advantage of reinsurance accounting over deposit accounting for the assuming company

A

reinsurance accounting allows losses to flow through income so taxable income is reduced

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9
Q

Difference between a runoff agreement and a novation

A

runoff: primary insurer remains liable
novation: primary insurer released from all liability

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10
Q

What did SAP codification project produce

A

a comprehensive guide to SAP that provided a consistent and comprehensive basis of accounting and reporting

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11
Q

Describe what SSAPs are

A

an accounting basis for preparation of SAP statements where state regs don’t exist

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12
Q

Concepts underlying SSAPs

A
  • conservatism (estimates conservative to protect policyholder)
  • consistency (need financial info that’s comparable across companies)
  • recognition (of assets) (solvency assessments based on balance sheet, income statement is secondary)
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13
Q

Levels of hierarchy of accounting rules

A
  1. SSAPs
  2. Emerging Accounting Issues working group
  3. NAIC Annual Statement Instructions
  4. SAP state of concepts
  5. Sources of nonauthoritative GAAP accounting guidance and literature
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14
Q

Describe procedure for when an insurer wants to use accounting rules that deviate from NAIC’s APPM

A
  • regulator must provide notice 5 days in advance of approval to all states where the insurer is licensed
  • notice must disclose: description of request, quantitative impact
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15
Q

Reasons for codification of SAP (3)

A
  • uniformity of reporting makes cross-company comparison easier
  • makes financial statement preparation for multi-state insurers easier
  • makes regulator detection of warning signs more obvious for weak insurers
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16
Q

Materiality considerations regarding errors when preparing SAP statements

A
  • does error affect user’s decision-making or understanding
  • consider ratio of error to policyholder surplus
  • consider whether error triggers an RBC action level
  • consider whether error causes an unusual IRIS ratio
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17
Q

What is a subsequent event

A
  • even that occurs after balance sheet but before issuance date of financial statements
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18
Q

Types of subsequent events

A

Type I:
- provides additional evidence with respect to conditions that existed at balance sheet date
- recognized event

Type II:
- provides evidence with respect to conditions that did not exist at date of balance sheet
- non-recognized event

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19
Q

Actions required for subsequent events

A

Type I: must be recognized in the financial statements

Type II: must be disclosed in notes to financial statements

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20
Q

Components of a liability

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A
  • responsibility to transfer assets upon occurrence of a specific event
  • responsibility can’t be avoided
  • event has occurred
21
Q

Define loss contingency or asset impairment and identify 3 levels

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A

a condition regarding uncertainty regarding amount of loss (resolved when future event occurs or fails to occur

Levels: probable, reasonably possible, remote

22
Q

Financial instrument has characteristics of both liabilities and equity, then how should be reported in financials

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A

as a liability (to extent instrument embodies unconditional obligation to issuer)

23
Q

Describe concept of earned but unbilled premium

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A

EBUB: estimate of audit premium for WC
- written/earned prem adjusted by EBUB amt
- after policy expiration, audit performed and EBUB is adj by appropriate amount
- EBUB is then immediately recognized in financial statements

24
Q

what is premium deficiency reserve

Study These Flashcards
A

PDR: liab equal to amt by which estimates of future outflows exceed future inflows

outflows include: losses, lae, commissions and acq expenses, maintenance costs

inflows include: recorded UEP reserve, future installment premiums on existing policies

25
Examples of DCC expenses
litigation mgmt, rehab nurses
26
Examples of A&O expenses
adjuster fees, attorney fees
27
Types of UW pools and associations
voluntary, involuntary, intercompany
28
Involuntary pool
- state-mandated participation - provides coverage to high-risk customers who can't otherwise afford coverage - prems and losses shared according to participants' share of voluntary market - also called residual market plan
29
Voluntary pool
- not state-mandated - provides greater capacity for risks with very high insurable values (ex: aircraft, nuclear) - premium and loss sharing mechanism not specified
30
Intercompany pool
- relates to business pooled among affiliated entities - prems and losses shared according to QS reins agreement - pooled business is ceded to lead and retroceded back to pool participants in accordance to their QS
31
How are UW results for voluntary and involuntary pools accounted for: gross or net
gross
32
Equity interests in pool treated as admitted or non-admitted assets
admitted
33
Can members of pools be subject to joint and several liability
yes
34
Identify financial statement disclosures required for pools
- description of terms of arrangement and business covered - identification of lead entity and all participants (and pooling %s) - amounts due to/from lead entity to all participants - other arrangements that fall outside of normal pooling agreements
35
Types of P&C Contracts
occurrence, claims-made, extended reporting
36
When reserves are discounted
when payments are fixed and reasonably determinable (ex: structured settlements) - LAE is not discounted
37
If annuity is purchased to fund a structured settlement, describe accounting treatment
if insurer is payee: no reduction in reserves if claimant is payee: reserves are reduced in amount that annuity provides funding for future payments
38
What is a long-duration contract
- contract whose term is at least 13 months - can't be cancelled or modified by insurer
39
Calc UEP reserve for P&C long-duration contract
For each of most recent 3 policy years: take max of 3 tests For older policy years combined: UEP is combined into a single number that is the max of the aggregate for each test
40
Test 1 for P&C long-duration contract
Mgmt's best est of amounts refundable to contract-holders at reporting date
41
Test 2 for P&C long-duration contract
gross prem * projected future loss / projected total loss - projected future loss relates to unexpired portion of the contract
42
Test 3 for P&C long-duration contract
projected future loss - investment income - PV of prems
43
What is a retrospectively rated contract
- contract where final prem is based on loss experience of policy - includes loss dev after expiration - final prem determined by formula written into policy or by law
44
What is term for a contract that has retrospective features
loss sensitive contract
45
Premium adjustments due to or from insureds considered admitted assets
yes but with exceptions like if amts deemed uncollectible
46
2 ways of estimating retrospective premium adjustments
1. apply historical ratio of (retrospective rated developments)/(earned standard premium) to premium for the policy being rated 2. for each risk, compare known to anticipated loss dev (including IBNR) to est. return or additional premium earned at that point in time
47
Describe accounting treatment of accrued additional and accrued return retrospective premium
Accrued additional retrospective premium: - record as receivable - with corresponding entry in WP or adj to EP Accrued return retrospective premium: - record as liability - with corresponding entry in WP or adj to EP
48
Identify required financial statement disclosures regarding retrospectively rated policies
- estimation method for premium adjustments - accounting method for premium adjustments - amount and proportion of net premiums subject to retrospective adjustments - calculation of non-admitted retrospective premium
Exam 6U Fall 2025
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