Odomirok 10

Question 1

Notes requiring direct involvement by actuaries

Answer 1

CARD+PDR
* Change (incurred loss & LAE)
* Asbestos & environmental reserves
* Reinsurance
* Discounting (unpaid loss & LAE)
* PDR (Premium Deficiency Reserves)

Question 2

Notes relevant to actuaries

Answer 2

SHIES
* Summary of significant accounting principles
* High deductibles
* Intercompany pooling
* Events subsequent
* Structured settlements

Question 3

Change (incurred loss & LAE)

Financial Notes

Answer 3

Shows prior AY changes:
* affects current CY UW income
* disclose change & reasons for change (segment, LOB, …)

Question 4

Asbestos & environmental reserves

Financial Notes

Answer 4

• significant adverse development over several decades
• must disclose detailed quantitative & qualitative info regarding reserves
• these reserves relate to exposures other than for policies specifically covering A&E

Past 5 years (separate for asbestos & environmental - direct, assumed, net):
* Beginning reserves
* Incurred Loss and LAE
* Calendar year payments for losses and LAE
* Ending reserves

Question 5

Reinsurance

Financial Notes

Answer 5

Reserves are net of reinsurance on the B/S & I/S:
* reinsurance can significantly lower the B/S reserves and affect the surplus
* must understand credit risk associated with reinsurance
* A: unsecured recoverables, B: disputed recoverables, C: reinsurance assumed & ceded (ceding commissions, ceded UEP), D: uncollectible recoverables

Questions the actuary might ask about each section:
* A: why wasn’t security provided? did a cat increase recoverables unexpectedly? are the unsecured amounts concentrated with 1 reinsurer?
* B: what is the nature of the dispute? is the disputed amount material? is there a legal opinion on the dispute?
* D: what was the reason for the uncollectible insurance? could other unpaid amounts become uncollectible for similar reasons?

Other comments:
* A: a note is required if (unsecured amounts for a reinsurer) / surplus > 3%
* B: recoverable is considered to be in dispute once a formal written refusal to pay is received from the reinsurer
* D: uncollectible amount is treated as an expense

Question 6

Discounting (unpaid loss & LAE)

Financial Notes

Answer 6

• disclose whether discounting is used for reserves
• if so, then disclose type of discounting: tabular (for WC) or non-tabular

Question 7

PDR (Premium Deficiency Reserves)

Financial Notes

Answer 7

• inclusion of investment income to offset PDR is optional
• disclose amount and effective date of PDR
• if PDR is recorded as part of UEP then this Note is the only way to know if PDR exists

Question 8

Summary of significant accounting principles

Financial Notes

Answer 8

• disclose source of rules (usually NAIC APPM and the SSAPS)
• disclose exceptions to rules

Question 9

High deductibles

Financial Notes

Answer 9

• insurer pays the full claim and then seeks reimbursement from the insured for the deductible
• creates credit risk that isn’t shown on the B/S
• disclose amount recorded & billed but not collected

Question 10

Intercompany pooling

Financial Notes

Answer 10

this is when companies in a group cede all business to lead company:
* each member of group then assumes back a specified percentage
* note must disclose pooling arrangements

pooling affects: U&IE, Schedule F Parts 1 & 3
Schedule P shows only pool member’s share of pooled results

Question 11

Events subsequent

Financial Notes

Answer 11

• must disclose Type 1 (recognized - e.g. updated info on already reported claim) & Type 2 (non-recognized - e.g. new large claim reported) subsequent events (SSAP-9)
• occur between date of financial statements and date the financial statements are issued

Question 12

Structured settlements

Financial Notes

Answer 12

usually WC - insurer buys annuity from life insurer for structured settlements payments
* disclose total amount of structured settlements payments for which insurer might be liable
* if payments from single life insurer > 1% of surplus > disclose life insurer & amount

pertains to credit risk and is not shown on the B/S

Question 13

Accounting treatment of: retroactive reinsurance

Answer 13

Balance sheet:
* purchase price decreases assets
* ceded reserves recorded as write-in contra liabilities
* surplus gain recorded as special surplus (until recoverables > purchase price)

Schedule P:
* no effect (because reserves are recorded as write-in contra liabilities)

Question 14

Accounting treatment of: runoff agreement

Answer 14

Balance sheet:
* purchase price counts as paid loss
* reserves recorded as ceded loss

Schedule P:
* shows decrease in net incurred loss

Question 15

Accounting treatment of: commutation

Answer 15

Balance sheet:
* purchase price increases assets
* re-assumed reserves increase direct reserves
* surplus gain recorded as unassigned surplus

Schedule P:
* shows increase in current year reserves