Retained Risk (PRIORITY)

Question 1

Guaranteed cost policy

Answer 1

A policy where an entity transfers all liability to an insurer for a fixed premium

Question 2

Retrospectively rated policy

Answer 2

A policy where an entity transfers all liability to an insurer based on actual loss experience. The final premium depends on an audited exposure base and loss experience.

Question 3

Large deductible policy

Answer 3

A policy where an entity transfers all liability to an insurer but retains a substantial deductible. The final cost includes:
- Final premium
- Losses within the deductible
- Claims handling costs

Question 4

Self-insurance

Answer 4

An arrangement where an entity retains all risk or purchases coverage for large claims only (common for exposures where insurance is not required by regulation)

Question 5

Claims-made coverage

Answer 5

Coverage where liability for claims reported after the policy expiration remains with the entity

Question 6

Captive

Answer 6

Affiliated insurance companies that can assume some or all of an entity’s liability. Captives are subject to less stringent regulation than admitted carriers

Question 7

Direct policy in relation to captive

Answer 7

A policy purchased directly from an affiliated captive insurer (typically used for coverages that would otherwise be self-insured)

Question 8

Fronting arrangement

Answer 8

An arrangement where an entity, having purchased a guaranteed cost policy, can transfer risk back to its captive

Question 9

Deductible reimbursement

Answer 9

A policy written by a captive that directly reimburses the entity for its deductible obligations

Question 10

Trust (in insurance)

Answer 10

A financial arrangement where funds or assets are set aside to cover potential losses. Commonly used to finance professional liability exposures.

Question 11

3 Contexts where a ‘retained risk’ actuarial analysis is generally used

Answer 11

AIR
- ADEQUACY of Accruals for Financial Reporting
- INTERNAL Financial Reporting and Cost Allocation
- REGULATORY Filing for a Qualified Self-Insurance Designation

Question 12

Adequacy of Accrual for Financial Reporting:
How are the actuarial estimates used?

Answer 12

○ To directly RECORD the accrual amount
○ To VALIDATE the reasonableness of management estimates

Question 13

Adequacy of Accrual for Financial Reporting:
Provisions included in these accrual for retained liabilities

Answer 13

○ Deductibles
○ Self-insured exposure
○ Potential retrospective premium amounts

Question 14

Adequacy of Accrual for Financial Reporting:
Key considerations when comparing an actuarial estimate to a company’s ledger

Answer 14

○ Net or gross of insurance recoverables
○ Discounting
○ Combined accruals that include other insurance-related balances
§ May include items like 3rd-party admin fees that are not accounted for in actuarial calculations
§ TIMING differences in payments, billing cycles, and treatment of prepaid balances/amounts due to 3rd-party admins and excess insurers are important

Question 15

Adequacy of Accrual for Financial Reporting:
Combined Accruals

Answer 15

Financial entries that include multiple related accruals, where only a portion is considered in the actuarial analysis

Question 16

Adequacy of Accrual for Financial Reporting:
Challenges that can arise when comparing actuarial analysis with financial statement accruals

Answer 16

○ Financial statement accruals may contain items that are not accounted for in actuarial calculation
§ e.g. TPA fees

Question 17

Adequacy of Accrual for Financial Reporting:
Timing-related issues with prepaid balances/amounts due to TPAs and/or XS insurers

Answer 17

○ Payments made but not yet reimbursed result in higher accruals
○ Advance payments lead to lower accruals

Question 18

Adequacy of Accrual for Financial Reporting:
How to address timing differences in accrual related to TPAs and XS insurers

Answer 18

○ Adjust accruals
○ Carry a separate timing accrual
○ Treat the timing difference as immaterial

Question 19

Adequacy of Accrual for Financial Reporting:
When do timing issues arise with claims paid by the entity but not yet reimbursed by an XS carrier?

Answer 19

When claims are paid but not yet reimbursed by XS carriers

Question 20

Adequacy of Accrual for Financial Reporting:
Timing discrepancies that can occur with retrospectively rated and large deductible policies

Answer 20

Timing gaps between claim payments and premium payments

Question 21

Internal Financial Reporting and Cost Allocation

Answer 21

• Actuarial indications help company management track financial performance and goals internally
• Limited data availability may pose challenges for actuaries when allocating reserves to subcomponents

Question 22

Regulatory Filing for a Qualified Self-Insurance Designation:
General requirement for a company applying for a Qualified Self-Insurance Designation

Answer 22

An actuarial report and certification along with its application package

Question 23

Regulatory Filing for a Qualified Self-Insurance Designation:
Who should provide the actuarial opinion for a self-insured application?

Answer 23

A member in good standing with the CAS

Question 24

Regulatory Filing for a Qualified Self-Insurance Designation:
What should be included in the actuarial opinion for a self-insurance application?

Answer 24

Actuarially appropriate reserves based on reserves estimated from the program’s inception to the valuation

Question 25

Regulatory Filing for a Qualified Self-Insurance Designation: Additional elements that the actuarial opinion should include

Answer 25

○ Identifying information about the actuary ○ Scope of the opinion ○ Description of the estimation method ○ Exhibit showing methodology ○ Data source information ○ Data reconciliation ○ Explanation of any data checking, verification, or auditing