SSAP Flashcards

Question

EBUB

Answer 1

Adjustment to premium due to changes in the level of exposure that havent been created yet. Premium is dependent on exposures (like sometimes in WC) and the exposures are higher than the initial estimated premium. The higher premium has been earned BUT it has not been billed. Thus, the higher premium needs to be recognized.

Answer 2

EBUB arises from policies subject to audit: 1) prior to audit, IC should estimate EBUB 2) once audit is completed EBUB should be adjusted to reflect the actual exposures

Answer 3

Because this has not been billed yet but recorded as earned, it presents a credit risk and requires COLLATERAL: 1) 10% of EBUB in excess of the collateral held is non-admitted 2) if any EBUB over this level is not anticipated to be collected, it should be written off

Answer 4

Insurers provide coverage before collecting premium. EG, Not cancelling policies for nonpayment of premium, Longer extended cancellation period than the stat cancellation period. (Personal Auto policies) IC is exposed to risk while the policy is still in force. Treated as WP.

Answer 5

Different from EBUB. EBUB's underlying exposure is subject to changed, but EBUP is based on the original exposure estimate.

Answer 6

If premium is later determined to be uncollectible, it needs to be charged to expenses as NET LOSS OR GAIN FROM AGENTS OR PREMIUM BALANCES CHARGED OFF

Answer 7

Premiums which are paid prior to the effective date of policy Recorded as liability Not considered income until due date and therefore should not be included in WP or UEPR until then

Answer 8

created when the anticipated losses LAE, commissions, and other costs associated with the UEP portion of premium exceed the UEPR.

Answer 9

IC can include investment income in calculation of PDR: 1) needs to be disclosed that it was considered 2) needs to be disclosed even if the deficiency is eliminated after the consideration of investment income PDR is recognized by recording a wite in liability for the deficiency with a corresponding reduction to income

Answer 10

established SAP principles for creating liabilities for l+lae reserves (exam 5 material)

Answer 11

-Reserves should not be discounted in state -Sal/Sub should be treated similar to the loss -Should not reduce reserves for recoverables that are believed to be impaired -Changes to Reserve estimates should be charged to income during the period in which the change occurs

Answer 12

1) liability balance at beginning and end of each year 2) incurred l+lae 3) current and prior L+LAE payments (current CY) 4) reasons for changes in losses on prior years and premiums are required to cover the changes 5) summary of management's policies to estimate L_LAE 6) anticipated sal/sub recoveries deducted from reserves 7) $ losses paid and # of claims resulting from extra contractual obligation lawsuits or bad faith lawsuits

Answer 13

3 categories of pools: 1) Involuntary pools - mandated by state. insureds unable to obtain coverage otherwise. based on market share of similar business in state. 2) voluntary pools - not state mandated. focused on greater capacity risks with exceptionally high levels of insurable values 3) intercompany pools - affiliated companies.

Answer 14

participation may be on a joint & several basis. Several carriers have own preset responsibility (Company A has 10%, Company B has 20%, etc) If one company is unable to uphold their participation, the onus falls on the other carriers

Answer 15

2 structures: 1) One or more participants may act as servicing carriers (admin duties, policy / claim handling) 2) a pool manager / admin may perform the services in return for payment, pool reimburses the manager

Answer 16

Participants share of premiums and L+LAE need to be recorded separately rather than netted against each other (premiums need to be separated from the L+LAE) Purpose: to give users an idea of how the cash flows to and from the pool compare

Answer 17

Equity Interest In and Deposit Receivables From a pool are admitted assets-> will impact the surplus of the company These need to be reported separately to receivables and payables related to the pool's UW results. Keep transactions related to UW results separate from the UW pools Equity interest In and Deposit Receivables

Answer 18

Overlap with other material in the exam so this is what is unique

Answer 19

Occurrence: covers loss which OCCUR during the policy period (losses occurring in 2024 will be covered regardless if it is reported in 2025 or 2026) Claims Made: covers losses REPORTED during the policy. (loss occurred in 2023, but reported in 2024, claim will be covered) Retroactive date* will eliminate duplicate coverage and reduce premium costs when moving from occ based policy to a CM based policy *Assume: retro date is 1/1/2024 and prior coverage was an OCC based policy. anything prior to 1/1/2024 will be covered under the OCC based policy so claims occurring in 2023 and reported after 1/1/2024 will not be covered. Following CM policy effective 1/1/2025 will also have a retro date of 1/1/2024. -> cheaper premium

Answer 20

Related to CM: Extended reported / Tail coverage are two endorsements to a CM policy that covers the events reported after termination of the CM policy. Doctor terminates CM policy 12/31/2025 due to retiring. A claim is reported in 2026, for an event that occurred in 2024. Tail coverage will cover the 2026 reported claim

Answer 21

Accounting Treatment will depend on the length of the period: Indefinite tail reporting period: premium are fully earned at inception of tail contract. liabilities are unreported for claims are recognized immediately. Fixed tail reported period: premium is earned over the length of the policy term; UEP needs to be established to account for the unexpired portion; losses should be recorded when reported

Answer 22

Recall, reserves typically should not be discounted there are exceptions defined in SSAP 65, where if there is a fixed and determinable payment pattern, tabular discounts can be used to record reserves: Tabular DC

Answer 23

If insurer uses tab DC, the following disclosures need to be made: 1) tables used 2) rates used 3) discounted liability 4) amount of tabular DC by line and reserve category 5) amount of interest and accretion* recognized in the income statement 6) the lines in the income statement in which the interest accretion is classified *Interest accretion - increase in value of reserves as time elapses and the discount reduces

Answer 24

if rates that were used to discount the prior AYs have changed, or changes to key DC assumptions, must disclose: 1) the amount of the DC reserves at the current rates and assumptions (excluding the current AY) 2) the amount of the DC reserves at the prior rates and assumptions (excluding the current AY) 3) change in DC liability due to change in interest rates and / or assumptions 4) amount of non tab DC by line and reserve category

Answer 25

Discussed in GAAP v Stat paper but will describe: Accounting for structured settlements depends on which party the payments are made

Answer 26

Payments are made to IC directly, then IC will make required payments to claimants. No reduction to reserves The annuity that is purchased to make the structured settlement is recorded as asset under "other than invested asset" at its present value income from the annuity is recorded as miscellaneous income (not UW income)

Answer 27

The annuity that is purchased to make the structured settlement is paid to claimant directly. From an IC standpoint, you can consider the obligation to pay has been satisfied. Loss reserves can be reduced Cost of the annuity is recorded as a paid loss

Answer 28

Amount of reserves which the company no longer needs to pay because it purchased annuities with the claimant as the payee *Extent to which it is contingently liable for liabilities **If the aggregate value of annuities (for which the insurer has not received a release of liability) from a given life insurer exceeds 1% of the surplus, it must disclose: 1) name and location of insurer 2) aggregate value of annuities 3) if the life insurer licensed in the insurer's state of domicile *The annuity writer is able to pay the structured settlements, is the IC going to be liable for the payments? (this is a credit risk) **If IC is liable when annuity payer (life insurance company) cannot pay. IC is now on the hook. Credit risk is material. Users can do their own due dilligence

Answer 29

2 requirements to be considered and LDC: 1) Policies greater than or equal to 13 months 2) Reporting entity cannot cancel the contract and cannot increase the premium (E.G; Home Warranty Policies)

Answer 30

Difficult to estimate UEPR Longer term, and risk is not uniform. For Home Warranty products, the risk increases as time progresses / home gets older Potentially subject to manipulation

Answer 31

For EACH of the 3 most recent PYs, the gross UEPR must be NO less than the LARGEST of the 3 tests: MAX (test 1, test 2, test 3) Test 1: Management's Best Estimate of the amounts refundable to the contract holders at the reporting date -if insured was to cancel the contract, how much would the IC have to refund to policy holders Test 2: Gross Premium x ( [projected future gross L&LAE form unexpired term] / [Projected total gross L&LAE] ) -what portion of the coverage is associated with the future applied to gross premium which gives the allocation of the total premium associated with the future Test 3: [ Projected future gross L&LAE form unexpired term] - [PV of future guaranteed gross premium] -first number is the same as numerator from test 2 and second number will likely be given

Answer 32

The rate used to DC should not exceed the minimum of: 1) future net yield to maturity on invested assets minus 1.5% provision for adverse deviation 2) current yield to maturity from US treasury debt maturing in 5 years from the reporting date (risk free rates)

Answer 33

For years prior to the most recent 3 years, the gross UEPR should be no less than the larger of the aggregate results of tests 1,2, and 3 taken over all of the older years

Answer 34

Reserves should be held net of the deductible. If deductible balance is believed to be uncollectible, hold reserves on a gross basis

Answer 35

Non-Admitted balance of recoverable from HDP, depends on the structure of the policy and specifically whether the insurer holds collateral: 1) if no collateral is held, deductible recoveries > 90 days overdue are NON-ADMITTED -aging should be based on contractual due date, if N/A then the billing date should be used 2) if collateral is held, deductible: -10% of the deductible recoverable IN EXCESS of the collateral, is NON-ADMITTED -if amount > 10% are deemed uncollectible, they should be NON-ADMITTED

Answer 36

1) loss reserves gross of High Ded, by LOB 2) For unpaid claims by the insurer: the reserve credit from the high-deductible recoveries due to the insurer 3) for paid claims by the insurer (where the insured has been billed): -paid recoverable > 90 days O/D -non-admitted amounts 4) collateral held 5) total unsecured high deductible amounts, including the % that is unsecured 6) highest 10 unsecured amount ranked by the counterparty

Answer 37

If there is potential exposure to A&E liabilities: 1) reserving methodology 2) amount paid and reserved for L+LAE 3) description of the line where there is potential exposure and the nature of the exposure 4) for the 5 most recent CYs, on gross and net basis, separately for Asbestos and for environmental exposures: -beginning reserves -Incurred L+LAE -CY payments for L+LAE -ending reserve

Answer 38

Final Premium is based on the Loss Experience: 1) if losses are lower (better than expected) - additional premium is returned 2) if losses are lower (better than expected) - additional premium is collected

Answer 39

Need to be based on experience to date: 1) Actuarially accepted methods: -Calculate the historical ratios of retrospective developments to EP, and apply these ratios to current EP to estimate the retrospective development 3) Review each retrospectively rated contract individually -For each risk, determine the ult loss, as well as the corresponding premium adjustment

Answer 40

Premium adjustments are treated as an immediate adjustment to premium 1) Accrued additional premium: recorded as a receivable - IC will owe this to RC also recorded as WP or EP - mechanics are not discussed. just know these pieces will be impacted 2) Accrued return premium recorded as part of the changes in UEPR also recorded as WP or EP - mechanics are not discussed. just know these pieces will be impacted

Answer 41

Assumptions used to estimate the retrospective premium adjustments should be CONSISTENT with the adjustments required to record other liabilities and assets E.G: company can't book a huge loss reserve generated from an individual client while simultaneously booking a large Return Premium due to the client (or vice versa) Contingent commissions and expenses based on the retro premium shall be adjusted in the SAME PERIOD that the premium adjustment is recorded. (Additional premium will produce additional commissions and expenses)

Answer 42

4 metrics should be calculated: 1) 100% of recoverable from any person whom any Agents Balances have been classified as NONADMITTED (ABs who have been deemed unlikely to pay) 2) Accrued retro premium adjustments that are NOT determined and billed in accordance with policy provisions (speculation: could be motivation for carriers to use the appropriate policy provisions) 3) 10% of accrued retro premium that is NOT offset by retro return prem / other liabilities to the same party / unused collateral 4) Factor x Accrued retro premium (post offset)

Answer 43

Factor in the formula: Insured's current quality rating / % of Retro Premium to be NON-ADMITTED / rating 1 - 1% - AAA, AA, A / Aaa, Aa, A 2 - 2% - BBB/Baa 3 - 5% - BB / Ba 4 - 10% - B / B 5 - 20% - CCC, CC, C / Caa, Ca 6 - 100% - CI, D / C, Default -Current ratings should be used - insureds that do not have a rating by a publicly recognized rating agency will need to be rated by SVO - If no public recognized rating and no SVO, then rating is considered to be a 5 UNLESS company has reason to believe it would be 6

Answer 44

IC needs to decide whether to use: 3) 10% of accrued retro premium that is NOT offset by retro return prem / other liabilities to the same party / unused collateral or 4) Factor x Accrued retro premium (post offset) nonadmitted balance = (1) + (2) + [(3) OR (4)] If IC wants to change from using (3) to (4) (or vice versa), they must receive approval and disclose in it financials

SSAP Flashcards

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