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242 Cards in this Set
- Front
- Back
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Explain the difference between staff underwriting and line underwriting.
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Staff U/W develops and implements the company’s overall underwriting philosophy.
Line U/W actually accepts or rejects individual risks. 1.1 - pp(s) 1 |
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Name the functions of an underwriter.
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Staff - make home office decisions, develop forms, evaluate pricing, audit field offices
Line - accept/reject risks, determine premium, remove or add coverage, recommend changes, account service. 1.2 - pp(s) 1-3 |
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Describe at least 3 ways in which underwriters use data.
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Staff - determine underwriting policy
Line - gather information on individual risks Staff and Line - for U/W changes 1.3 - pp(s) 3 |
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Both Line and Staff Underwriters have a need for data; why might a Staff Underwriter need data?
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To determine the company’s underwriting policy
1.4 - pp(s) 3 |
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Briefly describe the differences among written premium, earned premium, unearned premium, and manual premium.
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Written - Total premium booked for a given policy
Earned - The portion of a written premium for which coverage is provided during a given time period Unearned - Premium that is returnable to the policyholder in the event of a cancellation Manual - A premium determined by the use of manual rates 1.5 - pp(s) 6, 9 |
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List and describe the 6 basic components of an insurance rate. |
Indemnity Payments - Losses expected to be paid
LAE - Other costs related to the claims settlement process Underwriting Expenses - associated with obtaining new business or retaining existing business Taxes, Licenses, and Fees - Imposed by individual states. Excludes Fed Income Tax Miscellaneous Assessments - Special charges (e.g. residual market) Profit and Contingencies - Amount to compensate for putting capital at risk 1.6 - pp(s) 6-7 |
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Explain the difference between indemnity payments, allocated and unallocated LAE, and underwriting expenses. Give an example of each.
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Indemnity Payments - Losses expected to be paid.
Allocated LAE – LAE related to specific claims (e.g. legal) Unallocated LAE – cannot be assigned to specific claims (adjuster salaries) Underwriting Expenses - associated with obtaining new business or retaining existing business (commissions) 1.7 - pp(s) 6-7 |
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Which of the following definitions most clearly describes Underwriting Expenses?
A. Expenses associated with obtaining new or renewal business B. Home office claims handling expenses C. Expenses such as attorney's fees assigned to a specific claim D. Expenses for bureau assessments, licenses, and other fees |
A. Expenses associated with obtaining new or renewal business
1.8 - pp(s) 7 |
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List the advantages and disadvantages of using accident year data, policy year data, and calendar year data.
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Accident Year Data
Advantage—comparison of incurred losses to earned premium and is effective in ratemaking. Disadvantage—difficulty of calculation Policy Year Data Advantage—an accurate match between premiums and losses Disadvantage—time lag and requires more time to compile Calendar Year Data Advantage—for lines of business in which claims are reported quickly and their values are readily apparent—can be used for ratemaking Disadvantage—potential distortion of earlier years experience 1.9 - pp(s) 8-10 |
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Which of the following are true regarding Accident Year data compilations?
I. Losses are all those with occurrence dates within a given 12 month interval. II. Premiums are for all policies written in a given 12 month interval. III. Premiums and losses are aggregated based on the accounting dates of the transactions without regard to the effective and expiration dates of the policies and the loss dates of accidents. IV. Accident Year data are dynamic – payments and reserve adjustments change over time as more information about those claims become available. |
I and IV
I. Losses are all those with occurrence dates within a given 12 month interval. IV. Accident Year data are dynamic – payments and reserve adjustments change over time as more information about those claims become available. 1.10 - pp(s) 8-11 |
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Describe the process of collecting statistical data.
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Regulators appoint statistical agents
The SAs collect data from the companies The SAs compile the data into reports (according to formats required by regulators) The SAs submit the reports to the regulators 1.11 - pp(s) 10 |
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List the advantages of using statistical data rather than financial data in ratemaking
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Stat data allows for analysis of rates by state, territory, class, and coverage through AY or PY aggregations
1.12 - pp(s) 10 |
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Which of the following are true regarding Financial and Statistical Data?
I. Most regulators appoint statistical agents primarily to collect and compile Annual Statement data. II. Statistical plans provide specific instructions on the manner in which premium and loss transactions are to be reported to the statistical agent. III. Both financial and statistical data flow from the same basic source: the individual premium and loss transactions of insurance companies. IV. Statistical data are primarily used by regulators to evaluate solvency and profitability of insurance companies. |
II and III
II. Statistical plans provide specific instructions on the manner in which premium and loss transactions are to be reported to the statistical agent. III. Both financial and statistical data flow from the same basic source: the individual premium and loss transactions of insurance companies. 1.13 - pp(s) 10 |
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Describe the concept of “dynamic” data and explain the purposes of obtaining later evaluations of data. |
Evaluation of losses changes over time as more information about claims becomes available.
The purpose of obtaining later evaluations of data enables one to see more clearly what actually happened to a claim as time passes. 1.14 - pp(s) 11 |
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Describe the two common methods used for adjusting the premiums to the current level
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Extension of exposure - apply current manual rate to historical exposures
On-level - Apply on-level factors to historical premiums 2.1 - pp(s) 2 |
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Which of the following is not a common adjustment made to premiums for ratemaking purposes? A. Adjustments for exposure B. Adjustments for catastrophes C. On-level adjustment D. Adjustment for class plan differences |
B. Adjustments for catastrophes
2.2 - pp(s) 2-3 |
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Several common adjustments are made to losses in order to properly test the current rates. One of these is loss development. Which of the following most clearly describes the term loss development? A. Adjustments to account for law changes or policy differences. B. Factors applies for changes in claim costs and claim frequency from the experience period to the projection period. C. An adjustment to bring paid and estimated losses and loss adjustment expenses to an ultimate settlement value. D. Factors to include all loss adjustment expenses. |
C. An adjustment to bring paid and estimated losses and loss adjustment expenses to an ultimate settlement value.
2.3 - pp(s) 3 |
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Variability of data is inherent in premium and loss adjustments employed in ratemaking. Which of the following results in rate changes that are more stable over time?
A. Expense Constant B. Credibility C. Relativity D. Average based pricing |
B. Credibility
2.4 - pp(s) 3 |
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Based on the following information and using the loss ratio method, calculate the indicated statewide rate level change.
(1) = Accident Year (2) = Adj Earned Premium (3) = Adj Incurred Loss & LAE (4) = Adj Loss & LAE Ratio (3/2) (5) = Weight (1) (2) (3) (4) (5) 1993 2,309 1,756 0.761 0.20 1994 2,952 1,985 0.672 0.30 1995 3,411 2,501 0.733 0.50 (6) Weighted Adj Loss and LAE Ratio 0.721 (7) Expected Loss and LAE Ratio 0.600 |
20.2% (= 0.721 / 0.600)
2.5 - pp(s) 4-6 |
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Which of the following most clearly describes a statewide rate level analysis using the loss ratio method?
A. A review of the territory data by means of indices B. An analysis that is frequently employed to account for the variability of data inherent in premiums and losses C. A comparison of the prospective statewide average cost per exposure to the underlying cost component of the present statewide rate. D. A comparison of the prospective loss ratio with the loss ratio that would be needed if the insurer is to have enough for expenses and a reasonable profit. |
D. A comparison of the prospective loss ratio with the loss ratio that would be needed if the insurer is to have enough for expenses and a reasonable profit.
2.6 - pp(s) 4 |
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Describe the difference between the Loss Ratio Method and the Pure Premium Method for determining the indicated rate level change
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Loss Ratio Method - a comparison of the prospective loss ratio with the loss ratio that would be needed if the insurer is to have enough for expenses and a reasonable profit.
Pure Premium Method - a comparison of the prospective statewide average cost per exposure to the underlying cost component of the present statewide rate. 2.7 - pp(s) 4-7 |
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Given the following table of expense items as a percent of premium, calculate the expected loss and LAE ratio.
Commissions 15.0% Other acquisition costs 4.0% General expenses 9.5% Taxes, licenses, and fees 4.5% Miscellaneous assessments 1.0% Profit and contingencies 5.0% Total expenses and profit 39.0% |
61% (= 100% - 39%)
2.8 - pp(s) 5-6 |
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What is the result of dividing (or grossing up) the experience pure premium by the target loss and LAE ratio?
A. Weighted average pure premium B. Indicated rate change C. On-level factor D. Indicated average rate |
D. Indicated average rate
2.9 - pp(s) 6-7 |
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State the formula for determining base rates by territory and then use it to calculate the indicated territory rates based on the data in the table below
(1) Exposures (2) 5-Yr Loss Ratio (3) Index (2) to Statewide (4) Statewide Change (5) Present Base Rate (6) Indicated Base Rate (3x4x5) Terr (1) (2) (3) (4) (5) (6) 1 10,017 .550 1.100 1.100 $100 $121 2 20,000 .500 1.000 1.100 80 88 3 9,991 .400 0.800 1.100 50 44 All 40,008 .500 1.000 1.100 77.52 85.30 |
Present Rate x Statewide Indicated Change x Index to Statewide
2.10 - pp(s) 8-9 |
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Under which approach is the rate for each territory identical, and equals the average statewide rate?
A. Loss Ratio Method B. Average Pricing C. Cost-based Pricing D. Pure Premium Method |
B. Average Pricing
2.11 - pp(s) 9 |
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Briefly describe the differences between manual premium, standard premium, net premium, and final premium as described in the workers compensation ratemaking procedures section. |
Manual - manual rate x payroll (100s)
Standard - ER Mod x manual premium Net - Premium after premium discount? Expense constant added to discount or standard premium Final - After the audit 3.1 - pp(s) 2-5 |
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Which of the following is applied to the manual premium to determine the standard premium in the NCCI rating system?
A. Expense Constant B. Experience Rating modification C. Audit Factor D. Premium Discount rules |
B. Experience Rating modification
3.2 - pp(s) 3 |
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Explain the purposes of the Experience Rating Plan, Premium Discount Rule, and the Expense Constant in determining the workers compensation premium collected for an individual risk.
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Experience Rating Plan - adjust individual risk's manual premium depending on past loss experience compared to industry
Premium Discount Rule - reflects reduction of expense needs (larger volume risks) Expense Constant - per policy amount applied to cover operating or UW expenses 3.3 - pp(s) 3-4 |
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The expense provision in the NCCI Workers Compensation manual rate is intended to apply to the first $5,000 of standard premium per insured. To reflect a reduction in expense needs for an insured above this threshold, which of the following would apply?
A. Experience Rating modification B. Premium Discount rules C. Expense Constant D. Audit Factor |
B. Premium Discount rules
3.4 - pp(s) 3-4 |
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Name at least five considerations that are among the most important considerations in workers compensation ratemaking
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actuarial judgment,
catastrophe, classification plan, credibility, data, exposure unit, homogeneity, individual risk rating, investment and other income, loss development, mix of business, organization of data, operational changes, other influences, policy provisions, reinsurance, risk, trends 3.5 - pp(s) 12-13 |
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Describe and compare the data utilized in the calculations underlying the overall premium level change for workers compensation vs the changes by industry group and class
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Overall premium level change - Financial (premium and loss by insurers)
Rate relativities by class and industry groups - Unit (premium, payroll, loss by injury type, classification, and employer) 3.6 - pp(s) 7, 9 |
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List the four considerations cited in the workers compensation ratemaking procedures section that should be reflected in the manual rate regarding expenses and profit contingencies.
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Actual average expenses of stock insurers
Assumptions about expenses analyzed periodically Budgeted expenses and profit and contingencies included in the rate based on either judgment or historical usage Past regulatory pronouncement 3.7 - pp(s) 9 |
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List the three adjustments made to claim data in order to determine the indicated changes by industry group for workers compensation
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Expected development to ultimate
Projected impact of benefit level changes by injury type Off-balance produced by ER plan 3.8 - pp(s) 10 |
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State the four Principles of Property Casualty Insurance Ratemaking as promulgated by the Casualty Actuarial Society (CAS)
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Rate = expected value of future costs
Rate provides for all costs associated with transfer of risk Rate provides for costs associated with individual risk transfer Rate is reasonable, not excessive, inadequate or unfairly discriminatory if it is actuarily sound estimate of expected value of all future costs associated with individual risk transfer 3.9 - pp(s) 11 |
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According to the CAS statement of principles, the determination of an appropriate exposure unit is essential. Which of the following statements should guide the choice of an appropriate exposure unit?
A. That it measure the historical transfer of risk for each individual risk. B. That it vary with the hazard and be practical and verifiable. C. That it accurately measure past costs of the policy provisions. D. That it be a good estimate of external economic conditions. |
B. That it vary with the hazard and be practical and verifiable.
3.10 - pp(s) 12 |
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According to the CAS statement of principles, which of the following is true?
A. Regardless of the ratemaking methodology utilized, the material assumptions should be documented and available for disclosure. B. Ratemaking produces cost estimates that are actuarially sound if the estimation is based on any one of the four principles. C. A rate that is reasonable and not excessive or inadequate cannot be unfairly discriminatory. D. The actuary, by applying the ratemaking principles, will derive the proper rate to cover the costs of the historical experience. |
A. Regardless of the ratemaking methodology utilized, the material assumptions should be documented and available for disclosure.
3.11 - pp(s) 11-13 |
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The CAS Statement of Principles mentions that other business considerations are a part of ratemaking. List five professional fields other than actuarial that play a key role in ratemaking.
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CLUMF
Claims Law Underwriting Marketing Finance 3.12 - pp(s) 13 |
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Trace the history and role of the NAIC in regulating insurance
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1870 - National Convention of Insurance Commissioners.
Provides a means to produce uniformity by states in the regulation of insurance. Limits membership to heads of state insurance departments. 4.1 - pp(s) 1 |
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Which statement below does not accurately describe the National Association of Insurance Commisioners?
A. Provides a means to produce uniformity by states in the regulation of insurance. B. Originated in 1970 in order to comply with a Federal mandate on insurance regulation C. Organized in 1870 as the National Convention of Insurance Commissioners D. Limits membership to heads of state insurance departments |
B. Originated in 1970 in order to comply with a Federal mandate on insurance regulation
4.2 - pp(s) 1 |
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Who was Samuel Paul, what were the issues in his case against Virginia, and what was the outcome?
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Agent in NY, selling in VA
Refused to pay security deposit to VA Supreme Ct (1869) - Insurance is not interstate commerce (and can be regulated by state) 4.3 - pp(s) 1 |
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Describe the facts behind the South-Eastern Underwriters Association case, and the findings of the Supreme Court
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SEUA controlled rate-making in 8 states. Could exclude nonmember companies.
Supreme Ct (1944) - Insurance is interstate commerce and subject to Sherman Antitrust Act 4.4 - pp(s) 1-2 |
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What is the McCarran-Ferguson Act, and what resulted from its passage? Include its relation to the Sherman, Clayton, and Federal Trade Commission Acts.
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(1945) It gave a 3 year moratorium which allowed states time to enact their own fair trade and antitrust laws. The law exempted insurers from the Sherman, Clayton, and Federal Trade Commission Acts until 1948, at which time the Federal Antitrust Acts were to apply to insurance in states that had not enacted their own laws.
4.5 - pp(s) 2-3 |
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What was the All-Industry Insurance Committee? Why was it formed? What did it propose? How was it received by the states?
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The committee was formed to consider what legislation was necessary to satisfy the requirements of Public Law 15. Most states followed the all-industry bills that neither require not prohibit membership in rating organizations. If an insurer has its rates filed by a rating organization, it must use those rates unless it has the commissioner’s permission to deviate.
4.6 - pp(s) 2 |
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Which line of business would not be found in Schedule P?
A. Medical malpractice B. Multi-peril C. Auto physical damage D. Auto liability |
C. Auto physical damage
[not a long-tail line] 4.7 - pp(s) 4 |
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Because insurance companies are business, they must comply with the requirements of government agencies that monitor the activities of the general business community. Other than regulatory review of insurers' Annual Statements, name some forms of regulatory scrutiny faced by insurers?
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SEC, IRS
Some states require independent verification by a CPA. Many states also require that loss reserves be certified by actuaries or other designated loss reserve specialist. 4.8 - pp(s) 4-5 |
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What is IRIS and what does it do?
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Insurance Regulltory Information System - "early warning system"
prelim tests of company's financial condition (solvency, liquidity, profitability, etc.) 4.9 - pp(s) 5 |
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What is statistical data in the insurance industry?
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Basic type of insurance information routinely reported to the states.
Premium and loss information 4.10 - pp(s) 5 |
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What are the various types of insurance support organizations?
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Trade associations, or lobbying groups, work to influence politicians and the public to generate legislation that is favorable to the industry.
Other organizations, such as IDMA, IIA, CAS, and AICPCU, are formed to educate and certify insurance professionals. Property & Casualty support organizations that collect, aggregate, and report insurance companies’ statistical data. 4.11 - pp(s) 5-7 |
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What is a statistical plan?
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Uniform set of minimum reporting requirements for all insurers
4.12 - pp(s) 10-11 |
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Why is the term "rating bureau" being replaced by "advisory organization?"
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Organizations moving to provide recommended loss costs rather than rates
4.13 - pp(s) 6 |
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What are the 7 major national insurance support organizations which collect statistical data?
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NCCI
ISO (Ins Services Office) AAIS (American Assoc of Ins Services) NISS (Natl Independent Statistical Service) SAA (Surety Assoc of America) ISS (Independent Statistical Services) NCIS (National Crop Ins Services) 4.14 - pp(s) 7, 11 |
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Explain the differences between summary and unit transaction reporting.
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In summary reporting, an insurer submits a single record for a given accounting period showing the total dollar amount of premiums and losses for all policies with the same characteristics.
In unit transaction reporting, an insurer submits one or more records each time it writes a policy or incurs a loss. A company submits one or more premium records every time it issues, endorses, or cancels a policy. Similarly, it submits one or more loss records every time it pays a claim or anticipates doing so (outstanding losses). 4.15 - pp(s) 7 |
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Which statement best describes why aggregate premium and loss data must be collected and pooled in order to support the pricing of policies?
A. Insurers depend upon the regulators to calculate the price of insurance. B. Only individual insureres know the ultimate cost of their product. C. The cost of the insurance product can be written off as an expense. D. Almost no insurer has enough loss experience to produce credible data. |
D. Almost no insurer has enough loss experience to produce credible data.
4.16 - pp(s) 8-9 |
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What methods do statistical agents use to check and maintain the quality of their data?
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Fin Stat comparisons
Edits Comparisons - distributions, ratios, trends 4.17 - pp(s) 12-14 |
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Which two phrases below best describe the criteria in ""Calls for Experience"" issued periodically by statistical agents to their respective companies?
I. What information companies must provide. II. When the companies must provide it. III. How much data is to be provided. IV. Why the data is being requested. A. II and III B. I and II C. I and III D. II and IV |
B. I and II
4.18 - pp(s) 13 |
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Statistical agent data compilations may be evaluated using competing standards. In developing a statistical report, which of the following standards is a primary goal?
A. Cost B. Completeness C. Timeliness D. Quality |
D. Quality
5.1 - pp(s) 1 |
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The text describes four standards used to evaluate data compilation. Describe why the pursuit of one standard can result in the compromise of one of the other three standards.
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Completeness, timeliness, quality, cost
Short-term reports less complete than longer term reports. 5.2 - pp(s) 1 |
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Explain why changes to existing data reporting systems will be feasible only to provide information on future transactions.
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Could require system changes and time to generate meaningful data.
5.3 - pp(s) 1 |
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Which of the following is a reason why financial data generally cannot be used to evaluate the appropriateness of insurance premiums?
A. Financial data is only collected from major carriers. B. The reporting time lag is too long. C. Calendar Year data on premiums and losses come from different policies. D. Financial data sources differ from statistical data sources. |
C. Calendar Year data on premiums and losses come from different policies.
5.4 - pp(s) 1 |
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The Statistical (EX) Task Force has designated three basic types of report to meet differing regulatory needs and time frames. List them, describe how the data for each is compiled, and discuss what information they provide to regulators.
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Annual Statistical Compilations
- match premium and losses to evaluate experience for various lines - Regulators can evaluate most effectively whether rates meet statutory requirements Fast Track Monitoring System - quarterly premium and loss by state for major lines 60-75 days after quarter - Provides early indication of underwriting and market experience of the industry by line Accelerated Reports - individual state premium and loss info for each calendar accounting quarter 180 days after quarter - More detail than Fast Track. Bridge gap between Fast Track and Annual 5.5 - pp(s) 2 |
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What is the role of the Accelerated Reports in relation to the roles of Annual Statistical Compilations and Fast Track Reports?
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Info more quickly than Annual. More detail than Fast Track.
ID emerging trends and problems. 5.6 - pp(s) 2 |
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Why does the model regulation allow companies with limited premium volume to submit less detailed statistics than the larger companies?
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Problems associated with collecting data from small companies and the resulting delays offset any benefit from full reporting by all companies.
5.7 - pp(s) 3 |
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What type of statistical agent report provides an early indication of the underwriting and market experience of the industry by lines of business?
A. Collected Earned Premium Report B. Accelerated Reports C. Annual Statement Compilations D. Fast Track Monitoring Reports |
D. Fast Track Monitoring Reports
5.8 - pp(s) 2 |
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For the purposes of ratemaking, what adjustments do actuaries make to the data that would typically be prevented in Annual Statistical Compilation?
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- Adjust premiums to current rate level
- Adjust losses to bring to level that is anticipated when rates used - Adjust for inflation (using loss severity trend factor) - Adjust losses to put them on a common deductible basis for use in ratemaking. 5.9 - pp(s) 9 |
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Which of the following is a limitation to Fast Track Reports?
A. The reports do not provide definitive measurements of actual experience. B. Emerging premium and loss trends cannot be identified. C. Insight on external factors that affect cost is unavailable. D. There is no relationship to statutory Page 14 Annual Statement data. |
A. The reports do not provide definitive measurements of actual experience.
(Not entire industry) 5.10 - pp(s) 15 |
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Explain why the Accelerated Reports are not suitable for ratemaking.
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Premiums and losses do not match (calendar quarter basis)
No IBNR 5.11 - pp(s) 18 |
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What are ISO's major functions?
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Actuarial, Develop Advisory Rules and Policy Language, Develop and Distribute Manuals, Statistical Agent, Filings, Consulting Services and Claims Search.
6.1 - pp(s) 1-2 |
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ISO performs specific funcitons. Which of the following is not performed by ISO?
A. Devolop and distribute manuals B. Develop advisory rules and policy language C. Develop Insurance legislation D. Act as a statistical agent |
C. Develop Insurance legislation
6.2 - pp(s) 2 |
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Briefly describe statistical plan circulars (SP), statistical division circulars (SD), and statistical information series (SIS) circulars.
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Circulars are ISO's primary way of communicating with participating companies.
Statistical Plan Circulars inform companies of revisions to statistical plans. Statistical Division Circulars keep companies up to date on general statistical information and contain Call for Statistical and List of Persons to Contact. Statistical Information Series Circulars provide assistance to companies interpreting and implementing statistical plan instructions and requirements. 6.3 - pp(s) 3-4 |
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What are statiscal plans and why are they important?
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Statistical Plans are manuals that show the rulesand instructions for reporting data. Includes:
Personal Lines Statistical Plan (Other Than Auto) - PLSP (OTA), which collects data for Homeowners, Dwelling Fire, Mobile Homes, Earthquake, Personal Inland Marine and Personal Liability. Personal Auto Statistical Plan - PASP, which collect data for Liability, No Fault and Physical Damage. Commericaial Statistical Plan - CSP, which collects data for Commercial Fire and Allied Lines, Farmowners/Ranchowners, Commercial Inland Marine, Medical Professional Liability, General Liability, Commercial Automobile, Fidelity and Forgery, Glass, Burglary and Theft, Boiler and Machinery, Earthquake and Businessowners. Manuals that show the rules and instructions for reporting data. They are important because they establish condes and record layouts for formatting information by line of business. 6.4 - pp(s) 4 |
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What are some of the principal data elements on premiums and loss records? List ten of each.
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ISO Premium Data Elements: Company or Group Number, Transaction Type, Accounting Date, Inception Date, Transaction Effective Date, Transaction Expiration Date, State, Territory, Type of Policy, Area/Number of Apartments, Subline, Classification, Coverage, Rating ID, Construction, Protection, Deductible, Exposure/Amount of Insurance, Rating Modification Factor, Loss Cost Date, Loss Cost Multiplier, Premium Amount, Premium Record ID, Form, Policy Limits, Entry Into Claims Made Date, Annual Statement Line of Businesss, Limits ID, State Exception, Zone Rating, PIP Rating Basis, Anti-Theft Device, Model Year, Vaue per Rating Unit, Building Open Lots, Original Cost New/Symbol, Number of Employees, Rate Group, Type Rating Deductible, Building Code Effectiveness Grading.
ISO Loss Data Elements:Company or Group Number, Accounting Date ,Loss Date, Inception Date, State, Territory, Type of Policy, Subline, Class,Rating ID, Construction, Deductible, Exposure/Amount of Insurance, Premium Record ID, Form, Policy Limits, Annual Statement Line of Businesss, Limits ID, State Exception, Zone Rating, PIP Rating Basis, Model Year, Vaue per Rating Unit, Building Open Lots, Original Cost New/Symbol, Number of Employees, Rate Group, Type Rating Deductible, Building Code Effectiveness Grading. 6.5 - pp(s) 8 |
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Describe the key steps in ISO's receipt and accceptance process.
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1. Verify external label, transmittal record and submission control record.
2. Validate company submission on an individual record basis based on field and relationship edits. 3. Balancing & Error Tolerance Calculations are performed to determine whether corrective action must be taken. 4. Distributional edits are performed comparing data to historice or industry profiles to uncover systematic errors. 5. Submission Analysis Report (SAR) accompanies an insurer's returned submission explaining how the submission fared. Indicates whether the submission was accepted, rejected, and the error encountered. 6.6 - pp(s) 9-12 |
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When each field on a record is checked to verify it contains codes conforming to the statistical plan and verifies that the codes agree with those that ISO considers valid, which type of editing is performed?
A. Field edits B. Field relation edits C. Distributional edits D. Reports editing |
A. Field edits
6.7 - pp(s) 11 |
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Briefly describe the functions of balancing and error tolerance.
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Balancing–Compares the dollar amount and the number of records reported in a particular line of insurance with the dollar amount and number of records on the submission control record.
Error Tolerance–Each statistical plan and level of reporting has a percentage of errors that the system will accept. The system will reject any module that exceeds these tolerances. 6.8 - pp(s) 11 |
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Define the Submission Analysis Report (SAR).
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This report shows whether the submission had errors and whether it was accepted or rejected. It also contains a list of records along with error codes for each record–called the Error listing.
6.9 - pp(s) 12 |
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Explain the function and importance of the CEP in achieving data quality.
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Company Edit Program (CEP) is a computer application developed by ISO that allows companies to pre-edit and correct their data prior to submission to ISO. Making it more efficent and accurate.
6.10 - pp(s) 13 |
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Describe the process that relates 'Statistical Page 14' to statistical reporting.
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Statistical Page 14, Exhibit of Premium and Losses, from the Annual Statement is compared to paid losses and written premiums for all annual statement lines of business and is in annual statement line of business/state detail.
6.11 - pp(s) 14 |
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Why is an annual verification required?
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To ensure the completeness of the ISO database.
6.12 - pp(s) 14 |
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What three subsets of data are identified in the text as being the ingredients of the annual verification?
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Written premiums, paid losses, and outstanding losses (for private passenger automobile).
6.13 - pp(s) 14 |
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The ISO process that provides each company with tools designed 1) to control the accuracy of its personal automobile statistical data and 2) to compare its performance with respect to error control to others in the industry is call:
A. Statistical Data Monitoring system B. Incentive Assessment Program C. Distributional Edits D. ISO's receipts and acceptance reports |
A. Statistical Data Monitoring system
6.14 - pp(s) 14 |
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What is the ISO Insurer Report Card?
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Preformance evaluations of insurers, evaluating the timeliness and quality of their statistical submissions. These reports are mailed annually to the insurers Data Quality Officers and Chief Executive Officers.
6.15 - pp(s) 14 |
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Explain the Incentive Assessment Program (IAP)
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The IAP was developed to discourage delays and discourage reporting of erroneous data and facilitate compliance with necessary statutory and regulatory requirements.
6.16 - pp(s) 15 |
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List two general features of the ISS statistical plans.
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- Be simple
- Respect different territorial classifications & rating plans of various companies - contain only info for administration of rates, not ratemaking - limited to experience data only 7.1 - pp(s) 2 |
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The basic focus in developing ISS statistical plans is to fulfill which of the following company obligations?
A. Making of rates B. Loss cost information C. Data reporting D. Experience rating |
C. Data reporting
7.2 - pp(s) 2 |
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Explain the ISS plans' direct written premiums.
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Only for direct admitted business.
Only written premium by co in a state. Excludes surplus lines, reinsurance, or business written on a nonadmitted basis 7.3 - pp(s) 3 |
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Explain the following terms: exposure, outstanding losses
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exposure - unit by which a company measures its hazard
outstanding losses - reserves per claim, any amount unpaid for a specific claim 7.4 - pp(s) 4 - 5 |
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Describe the method of reporting endorsements and cancellations to the ISS.
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endorsements:
- effective as of PED - offset the original record - effective after PED - additional entry to adjust unearned premium and exposure cancellations: - flat - identical in coding to original w/ exposure and premium credits - pro-rata - like endorsement - short-rate - entry identical to original with exposure pro-rated and unearned premium based on short-rate table 7.5 - pp(s) 7 |
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Differentiate among the three bases of reporting data to the ISS.
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Calendar Year - when transaction reported on books
Calendar/Accident Year - losses occuring the year compared to premium written or earned in that year Policy Year - Ped determines year into which premiums and losses fall 7.6 - pp(s) 8 |
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Which of the following bases is used when a company reports data to the ISS by separately reporting experience according to the date the transaction was entered on the company's books?
A. Calendar Year B. Calendar/Accident Year C. Policy Year D. Fiscal Accident Year |
A. Calendar Year
7.7 - pp(s) 8 |
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Briefly describe the collection of losses under the quarterly automobile call.
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For voluntary auto.
Report all transactions (paid and outstanding loss and ALAE) (summarized) recorded during that quarter. 7.8 - pp(s) 11 |
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List each of the calls under the Casualty Lines Other Than Automobile Statistical Plan.
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Burglary & Theft / Crime
Farm Liability Fidelity & Surety / Forgery General Liability Glass Personal Liability Professional Liability (incl. Medical Malpractice) 7.9 - pp(s) 12 - 13 |
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Compare the level of detail required by the Fire and Allied Lines Call and the Crop-Hail Call.
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Fire and Allied requires separate paid and outstanding losses including paid and oustatanding claim counts (expenses are excluded), while Crop-Hail only requires written premium and incurred losses (paid + outstanding combined)
7.10 - pp(s) 14 |
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Describe the three major procedures used by the ISS to validate individual company data.
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Completeness Checks (Balancing & Reconciliation)-performed separately by line of business for every state in which the company reported busiess.
Editing of Codes-required to ensure that companies are reporting properly defined NAII codes. Distributional Checks-determine if the experience reported by the company is unreasonably concentrated in certain codes. 7.11 - pp(s) 16 - 17 |
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One type of ISS review for verification of data is to determine if the experience reported by a company is unreasonably concentrated in certain codes. This type of review is done via which of the following:
A. Validation of Aggregate Data B. Distributional Checks C. Relational Edits D. Content Edits |
B. Distributional Checks
7.12 - pp(s) 17 |
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Identify the ways in which ISS data is used to satisfy the data reporting requirements of the companies.
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Compilations (aggregate reports to insurance departments)
Residual Market Quota Determination and Fulfillment Requests for Additional Info (from regulators) 7.13 - pp(s) 18 - 19 |
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Which of the following us used to encourage improvements in statistical reporting by heightening awareness of reporting issues and reinforce importance of reporting timely and accurate data to the ISS?
A. Quality Improvement Program B. Affidavit C. Reconciliation Report D. Ratio Report |
A. Quality Improvement Program
7.14 - pp(s) 18 - 19 |
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Name the state the requires data for ratemaking from ISS.
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NC
7.15 - pp(s) 19 |
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Identify the four main functions of a summarized statistical reporting system.
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Record Creation
Control Establishment Editing Data Elements Report Compilation 7.16 - pp(s) 20 |
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Describe workers compensation insureance and the four types of benefits paid to workers as a result of injury or disease contracted at work.
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Provides ""no-fault"" compensation benefits to employees for work-related injuries and illnesses.
- Unlimited medical expenses - Lost wages (indemnity) income payments - Vocational rehabilitation - Death benefits 8.1 - pp(s) 1 |
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Which of the following are considered major functions of NCCI?
I. Data Collection II. Research III. Communication IV. Rehabilitation Services A. I, II, and III B. I, II, and IV C. I, III, and IV D. All of the above |
A. I, II, and III
8.2 - pp(s) 1-5 |
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Briefly state the functions of NCCI' Data Collection Procedures Subcommittee.
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Provides ongoing input regarding the needs and challenges facing data providers.
Acts in an advisory capacity. Makes recommendations concering data collection procedures. 8.3 - pp(s) 5 |
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Describe NCCI's Integrated Database (IDB).
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Policy and unit statistical data reside on 1 database with a series of tables that "relate" to one another.
8.4 - pp(s) 6 |
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Describe NCCI's Statistical Plan for Workers Compensation and Employers Liability Insurance
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Contains the unit statistical data reporting requirements and instructions for collecting and reporting WC premium and loss data.
8.5 - pp(s) 7 |
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What type of data is included in the unit report? Name 10 key data elements that are required on the first unit report.
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The first report and corrections to the first report include all the data elements of a unit report plus exposure and premium. Premium and Exposure are not reported on Subsequent reports. Report number, Correction sequence number, Policy Number, Exposure State, Carrier Code, PED, Class Code or Stat Code, Exposure, Claim Number, Accident Date, Injury Type, Incurred Losses, etc. Insured Name, Coverage Code, Manual Rate, Premium Amount Rate, Experience Modification
8.6 - pp(s) 7-9 |
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What types of data are included in subsequent (2nd through 10th) unit reports? When are they submitted?
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Updated data on Losses
8.7 - pp(s) 10 |
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Under what conditions must subsequent unit reports be filed?
A. When the first report was an estimated audit. B. When there is an open claim. C. When the first report was submitted late. D. When there is a death benefit claim. |
B. When there is an open claim.
8.8 - pp(s) 10 |
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At what time is the data for a unit report evaluated, and at what point is the unit report due to NCCI?
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1st report - evaluated at 18 month, due in 20th month
Subsequents - 12 months after prior report up to 126 month valuation 8.9 - pp(s) 10 |
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The unit report is not applicable in states where Workers Compensation Insurance can only be purchased through state insurance funds. These states are called?
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Monopolistic states
8.10 - pp(s) 11 |
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List the Independent states.
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CA, DE, IN, MA, MI, MN, NJ, NY, NC, PA, TX, WI
8.11 - pp(s) 11 |
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What is the purpose of NCCI's Unit Report Control System?
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To help data providers provide timely data that complies with the data submission statistical plan rules. Also monitors the timely submission of 1st-10th
8.12 - pp(s) 13 |
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Name and briefly describe NCCI's 2 major ratemaking calls.
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Policy Year Call - one of the primary ratemaking calls. The policy year is composed of premium and losses for all policies with effective dates initiated in that year.
Calendar-Accident Year Call - uses the accident date to organize the results. These calls provide a full year of premiums and losses, and are used to examine developing loss patterns that assist in determining future rate level trends. 8.13 - pp(s) 16-17 |
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The NCCI Policy Year and Calendar/Accident Year Calls are examples of which type of call?
A. Underwriting B. Specific state call C. Supplement to ratemaking D. Ratemaking |
D. Ratemaking
8.14 - pp(s) 16-17 |
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List the purposes of analyzing Aggregate Annual Statement data
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- Allows a complete statement of operating gain or loss, before Fed Income Tax, with each line of business.
- Allows additional analysis of operating results - a uniform, detailed presentation of all expenses, by expense classifcation and function, is possible - used to determine the compay's profitability for each lines of business 8.15 - pp(s) 17-18 |
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Describe NCCI's Call for Detailed Claim Information (DCI).
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- Only indemnity claims
- all death + PT plus a random sample of other claims - captures more information on the nature and cause of injuries, claimants' demographic characteristics, and claims resoulution process. 8.16 - pp(s) 19 |
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"
Identify two methods of submitting data to NCCI. |
Electronic or hard copy
8.17 - pp(s) 6 and 20 |
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List some of the other (non-NCCI) workers compensation organizations.
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state rating bureaus (CA, DE, IN, etc.) + ISO
8.18 - pp(s) 21-22 |
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Identify the types of residual market mechanisms.
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Assigned Risk, Joint Underwriting Associations, Reinsurance Facilities, State Funds, FAIR Plans, and Pools
9.1 - pp 1 - 3 |
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List the key characteristics that the various residual market plans have in common.
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Sharing of risk and formed to offer coverage to those who cannot obtain it through the voluntary market.
9.2 - p 3 |
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Identify and describe the two markets for automobile insurance in this country.
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Voluntary Market-consists of consumers that a company believes it can insure at its rate levels
Residual Market- consists of consumers who are unable to purchase through the voluntary market 9.3 - p 1 |
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A type of Residual Market that provides fire coverage on a property risk is called?
A. FAIR plan B. State Fund C. Federal relief fund D. Pools |
A. FAIR Plan
9.4 - p 1 |
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Explain the purpose of AIPSO.
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Automobile Insurance Plan Service Office (AIPSO)
Organization that oversees the mechanism for distribution of this residual market. 9.5 - p 4 & p 10 |
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What are the two variations of automobile insurance plans that cater to the special conditions and needs of the commercial automobile residual market
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Commercial Automobile Insurance Procedure (CAIP) and Special Risk Distribution Program (SRDP)
9.6 - p 6 |
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List and briefly describe the three kinds of services provided by AIPSO.
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1. Management - Provides all necessary service to operate AIP, JUA, or RF professionally and efficiently.
2. Ratemaking - Develops and files rates and supporting policy forms. 3. Data Services - Collects , evaluates and edits insurance premium and expense data received from statistical agents that collect the data. Develops and adjusts ratios for insurers to maintain equitable sharing of insurance applications. Is also able to process insurance applications and provide customer support for any residual market mechanism. 9.7 - p 8 & p 10 |
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Why is the quality and validity of the AIPSO base data so important?
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Incorrect or late reported data affects statistical information for a specific company but also results in incorrect statewide totals which affects all subscriber companies.
9.8 - p 12 |
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The amount of automobile insurance plan premium a company writes is called its?
A. Market share B. Quota determinations C. AIP fulfillment D. Base data |
C. AIP fulfillment
9.9 - p 12 |
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List the four main steps in determining a company's assignment quota.
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1. Market share-serves as a basis for a company's quota.
2. Basic Quota-is the share of new and renewal business a company should write. The market share is adjusted to reflect any voluntary credit premiums in those states with a credit program. 3. New Business Basic Quota-the basic quota is adjusted to reflect a company's estimated AIP renewal premiums. 4. Final Quota-a company's over or under. 9.10 - pp 12 - 14 |
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Explain the purpose of AIPSO's automated risk assignment system.
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To calculate companies final quota for AIP fulfillment and distribute applications to insurers. Makes an assignment to the company that has least fulfilled its quota at the point in time.
9.11 - p 14 & p 15 |
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What information is available to a subscriber from the Preliminary Report and Annual Report published by AIPSO?
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Preliminary Report - Produced in May for previous calendar year. Contains Voluntary Car Years, Voluntary Premium Credit, AIP Fulfillment.
Final Report - Produced in July and approve an Annual Plan Governing Committee meetings for distribution to all subscriber companies. Insurers are able to compare it's reported Voluntary Car Years in relation to statewide Voluntary Car Years. They can analyze individual company's Voluntary Premium Credits to determine whether company has written too many or few risks. Also able to compare AIP Fulfillment of other carriers. 9.12 - p 15 |
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Describe the two options that companies have in satisfying their obligation for filing rates with the various state insurance departments where the Surety Association of America has had its loss costs filings cleared.
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1. They may utilize SAA's manual Rules and Classifications reference, reference the SAA's loss costs and file multipliers to those loss costs to develop their own end rate.
2. They may file their own rates and manual directly with the state insurance department. 9.13 - p 17 |
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Describe the key member services of the IAIABC.
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The IAIABC provides its members with access to information consistent with day-to-day operational needs and apprises its members of current and developing Workers Compensation issues as well as pending and current legislation and judicial developments.
9.14 - p 18 |
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Describe the purpose and activities of CAR.
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Administer the residual market for automobile reinsurers in Massachusetts. Transitioned to an Automobile Insurance Plan (AIP) in 2008. CAR will process run-off business until 2018.
Provides legal, information systems, Claims Administration, Special Investigative (SIU), Audit, Financial, Operational, and Strategic planning services. 9.15 - p 19 |
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List the objectives of the Insurance Bureau of Canada (IBC).
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Collects, collate, and analyze actuarial, statistical and other information and disseminate and make these available.
Study relevant legislative proposals and make appropriate recommendations. Engage in public affairs activities with a view to promoting a better understanding of property and casualty insurance. Assist in the maintenance of high ethical standards and practices in the conduct of the P&C business Provide a forum for discussion. Engage in all such other activities which are in the opinion of the Board of Directors, necessary, incidental or conducive to the attainment of the objects of the corporation. 9.16 - p 21 |
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Describe the activities of AAIS then compare and contrast them with other data collection organizations.
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American Association of Insurance Services (AAIS) - Provides rate making, rules, and forms. Collect and compiles statistical data per each states insurance department.
9.17 - p 25 |
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Describe the organization and services of the NISS.
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National Independent Statistical Service (NISS) - provides statistical services , aggregate data reports, Data collection systems, verification of company data, keeps members informed with bulletins and provides training on statistical reporting. Services several lines of insurance.
9.18 - p 27 |
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What reporting basis is the foundation for all Calls for Experience published by National Independent Statistical Service (NISS)?
A. Unit transaction detail B. Summary level C. Mandatory level D. Unit report level |
B. Summary level
9.19 - p 28 |
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List and define the two basic type of reports produced by accounting information.
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Management reports - for internal decision makers
Financial reports - for interested persons outside the co. 10.1 - pp(s) 1 |
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Give examples of the users of accounting information and how they find it useful.
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Investors, creditors, suppliers, and other external groups - allows them to make decisions about their relationship with the company.
10.2 - pp(s) 1 |
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The balance sheet consist of the following parts:
A. Revenue and expenses B. Assets, liabilities, and owners equity C. Assets and expenses D. Assets and net income |
B. Assets, liabilities, and owners equity
10.3 - pp(s) 2 |
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Describe the basic principle of double entry.
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any transaction recorded in 2 places (e.g. a purchase = increase in asset account and reduction in cash).
Powerful control and checking mechanism. 10.4 - pp(s) 3 |
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Define the revenue recognition principle and give an example as it relates to insurance.
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revenue recorded when an exchange is made rather than when payment made.
Premium counts as revenue once it is earned, regardless of when payment is made. 10.5 - pp(s) 4 |
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Explain the matching principle and give an example as it relates to insurance.
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When determining net income, should match expenses with associated revenue. Indicates when expenses should be recorded. In determining net income for a given period expenses should match associated sales or revenue generated in that period.
Matching earned premium with associated losses? 10.6 - pp(s) 4 |
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A function of the statutory regulatory insurance bodies is to?
A. License insurance companies B. Monitor their activities C. Approve the forms and conditions of policies D. All of the above |
D. All of the above
10.7 - pp(s) 7 |
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Explain the origin of statutory accounting (i.e. the reason it is so important to regulate insurance).
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Insurance sells products before costs incurred. Therefore, it is important to the public that management act prudently to ensure the solvency of the company.
10.8 - pp(s) 9 - 10 |
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Describe the components of policyholder's surplus and explain what function policyholders' surplus serves.
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Consists of capital paid in for stock + capital surplus (amount paid for stock over par or for a mutual co the amount loaned or paid into the co by policyholders).
Serves as extra base of resources in case of catastrophic unexpected losses and as working capital for expansion. 10.9 - pp(s) 11 |
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Identify the primary source of insurance revenues and explain the method used to defer these revenues.
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Premium.
Assigned to an unearned premium reserve. 10.10 - pp(s) 11 |
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The three major uses of premiums (i.e. types of expenses) are:
A. Claim losses, loss adjustment expenses, and underwriting expenses. B. Investment income, claim losses, and loss adjustment expenses C. Taxes, underwriting expenses, and loss adjustment expenses D. Taxes, claim losses, and investment income |
A. Claim losses, loss adjustment expenses, and underwriting expenses.
10.11 - pp(s) 13 |
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Identify the major components of an insurance company's Annual Statement.
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Introductory first page
Balance sheet Statement of income Capital and Surplus Account Underwriting and Investment Exhibit 10.12 - pp(s) 14 |
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Describe the importance of reporting IBNR losses on a company's Annual Statement.
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In many cases there is considerable delay between the occurrence of an accident and when it is reported to the insurance co
10.13 - pp(s) 14 |
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Describe the content of Schedule P and discuss the usefulness of this information.
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Shows loss development
Schedule P is an analysis of the company's premiums and claims experience over the prior 10 years. 10.14 - pp(s) 19 |
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Name the three primary reserve funds on the liability side of the balance sheet.
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Unearned Premium Reserve
Loss Reserve LAE Reserve 10.15 - pp(s) 21 |
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Describe the breakdown of an insurance company's liabilities (i.e. what is the largest portion, etc.)
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Loss and LAE Expenses (68.7%)
Unearned Premiums (19.0%) Other Liabilities (8.6%) Reinsurance Funds (1.8%) Commissions, Taxes, and Other Expenses (1.9%) 11.1 - pp(s) 30 |
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Explain the consequences of overestimating and underestimating loss reserves.
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Over - profits appear to fall, income taxes reduced, and premium rates may be unnecessarily increased
Under - financial condition appears better than it is, underwriting profits overstated, income taxes rise, and premium rates may be cut unwisely. In both cases, the company may make unwise decisions. 11.2 - pp(s) 29 |
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The most uncertain element of loss reserves is created by:
A. Losses that have been incurred and reported but not settled. B. Losses which have been incurred but not reported. C. Losses that have been incurred, reported, and settled, but not yet paid. D. Incurred and reported but unsettled losses involving liability. |
B. Losses which have been incurred but not reported.
11.3 - pp(s) 33 |
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Identify four methods for calculating loss reserves.
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Case-basis method - estimate probable loss in each reported claim.
Average-value method - # cases of a particular type x average case value (OK for short tail claims). Fast-track method - establish a bulk reserve for losses expected to be small and settled quickly. Formula method - most frequently for long-tail lines. An example is loss ratio. Statutory Reserves—reserves determined by NAIC state-imposed formulas 11.4 - pp(s) 34-36 |
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If the statutory reserves required by state regulators is greater than a company's estimate, the company must record the difference as:
A. Unassigned funds B. Excess of statutory over statement reserves C. Other expenses D. Excess loss reserves |
B. Excess of statutory over statement reserves
11.5 - pp(s) 36 |
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Distinguish between loss adjustment expenses that are allocated by claim and loss adjustment expenses that are unallocated.
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ALAE - many paid for services provided by outside adjustment cos. And professionals.
ULAE - cover general adjustment costs within the company. 11.6 - pp(s) 37 |
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Describe the liabilities other than loss reserves that appear on an insurance company's balance sheet.
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Taxes, borrowed money, foreign exchange adjustments, contingent commissions, other
11.7 - pp(s) 37 |
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Explain the rule of when reinsurance claims can be used to reduce liabilities and when they cannot be used to reduce liabilities.
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Claims against unauthorized reinsurers are not accepted as reductions of liabilities unless secured by letters of credit or other forms of collateral.
11.8 - pp(s) 38 |
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Distinguish between nonadmitted and admitted assets and give examples of each.
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nonadmitted - appear as assets under GAAP but excluded by law, e.g illiquid assets (premium overdue > 90 days, office equipment, furniture) or assets statutorily excluded (certain investments or amounts in excess of statutory limits).
admitted - are those which can easily be turned into cash such as bonds, stocks, real estate, invested assets, etc. 11.9 - pp(s) 41-42 |
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Describe the breakdown of an insurance company's investments.
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Bonds (75.3%)
Common Stocks (12.0%) Preferred Stocks (2.0%) All Other (10.7%) 11.10 - pp(s) 45 |
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Explain the method used to value bonds for statutory financial reporting.
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In Statutory Accounting --Valued at amortized cost
In GAAP Accounting --Valued at cost or market dependincy on the investment motive of the holder. 11.11 - pp(s) 42 |
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Explain the method used to value stocks for statutory financial reporting.
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Decreed by the NAIC's "Valuation of Securities" - usually reflects current market value of each stock at year end.
Difference between actual cost and NAIC value is added or subtracted from policyholder's surplus. 11.12 - pp(s) 47 |
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Describe the assets other than investments that appear on an insurance company's balance sheet.
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Agent's balances, uncollected premiums, or unearned premiums
Reinsurance recoverables Funds held by or deposited with reinsured cos (for reinsurers) Bills receivable, taken for premiums Federal Income Tax recoverable Interest, dividends, and real estate income due and accrued 11.13 - pp(s) 49-50 |
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Name the income and expenses involved in calculating underwriting income and the income and expenses involved in calculating investment income.
|
Underwriting income--Commissions and other costs involved in selling insurance policies, premium collection expenses, taxes and fees associated with premiums and normal business expenses.
Investment income--Interest, dividends and other amounts received as a result of continuing investments, less the expenses of administering the investment part of an insurance company's business. 11.14 - pp(s) 53 |
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Give examples of what would be included as "other income" (income other than underwriting and investment income) on the income statement.
|
Net gain or loss from agents' or premium balances charged off
Finance and service charges not included in premium Aggregate write-ins for miscellaneous income 11.15 - pp(s) 56 |
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The following financial ratio is a measure of solvency risk:
A. Combined ratio B. Profit margin C. Rate of return on equity D. Premium/surplus ratio |
D. Premium/surplus ratio
11.16 - pp(s) 91-92 |
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Explain why insurance buyers have a direct financial interest in their company going beyond that of the customers of most commercial corporations.
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Because the consumer is purchasing protection against a potential economic loss. The loss insured against is almost always greater than the price (premium) paid and can only be estimated at the time the product (policy) is acquired.
12.1 - pp(s) 15 |
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|
List the five amounts used to compute net income.
|
* Net underwriting gain / loss
* Net investment gain / loss * Other income * Dividends to policyholders * Federal / foreign income taxes 12.2 - pp(s) 16 |
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The primary financial report utilized by state regulatory authorities is the
A. Annual Statement B. Quarterly Statement C. Monthly Statement D. Annual Report |
A. Annual Statement
12.3 - pp(s) 16 |
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Which of the following statement is false:
A. Deferred income taxes are generally not recognized under statutory accounting practices. B. Statutory property and casualty insurance accounting principles and practices cannot be stated with exact precision. C. GAAP does not recognize furniture and equipment as assets. D. Statutory policy reserves have been intentionally established on a conservative basis. |
C. GAAP does not recognize furniture and equipment as assets..
12.4 - pp(s) 16 |
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Describe what is included in net written premiums in the Underwriting and Investment Exhibit of the annual statement.
|
Direct Premium + Reinsurance Assument - Reinsurance Ceded
12.5 - pp(s) 19 |
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Explain what the earned premium amount shown in the Statement of Income of the annual statement represents.
|
Represents the prorata portion of the premiums in force applicable to the expired portion of the policy term plus / minus premium earned on audit / endorsement net premium. To compute earned premiums, deduct from net premium writings the net change which has taken place during the period in total unearned premium reserve.
12.6 - pp(s) 19 |
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|
Discuss how EBUB (earned but unbilled premiums) arise and where they should be reported in the annual statement.
|
Usually workers compensation, additional / return premium resulting from audited policies. Reported in the annual statement as written premium and premium receivable.
12.7 - pp(s) 19 |
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Which of the following items is not considered as earned in the annual statement.
A. Accrued interest income B. Investment income due C. Interest received in advance on mortgage loans D. Bond interest |
C. Interest received in advance on mortgage loans
12.8 - pp(s) 20 & 21 |
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|
Discuss how the premium between to par value and the purchase price of a bond is amortized.
|
Proper decrease in investment income and is amortized over the number of years from acquisition of the bond to maturity date of call feature producing the lowest amortized value.
12.9 - pp(s) 20 & 21 |
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Give six examples of income that falls under the section for 'Other Income' in the Statement of Income.
|
* Net gain / loss from Agents and / or Premium balances charged off
* Finance / Service charge not included in premium * Premiums for life insurance on employees * Other receipts and adjustments not reported elsewhere * Checks cancelled because of non presentation. * Receipt from schedule X assets 12.10 - pp(s) 22 & 23 |
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|
Distinguish between allocated and unallocated expenses, giving three examples for each type of expense.
|
Allocated expenses can be related to specific claims such as: Claim adjustment services, defense, litigation, and medical cost containment
Unallocated cannot be related to specific claims such as: claims administration staff, office maintenance, supplies, postage 12.11 - pp(s) 26 |
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|
Describe commissions and how they should be reflected in financial statements.
|
Commissions are payments made to agents for placing policies with the insurer and represent a significant portion of other underwriting expenses.
Statutory reporting requires commissions to be immediately charged as an expense. GAAP requires commissions to be expensed as paid and depends upon how they are paid, agency bill versus direct bill. 12.12 - pp(s) 25 |
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|
List the three expense groups for fire and casualty insurance companies and give examples of each group.
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Loss Adjustment Expenses - expenses incurred in connection with the adjusting, recording and paying of claims.
Other UW expenses - Acquisition, field supervision and collection expenses; General expenses; Taxes, Licenses, and Fees. Investment expense - Expenses incurred in the investing of funds and the pursuit of investment income such as initiating or handling orders and recommendations for investments, research, pricing, appraising and valuing, disbursing funds and collection income, safekeeping of securities and valuable papers, maintaining general and detailed records, data processing, general clerical, secretarial, office maintenance, supervisory and executive duties, supplies, postage, and the like. 12.13 - pp(s)pp(s) 27 & 28 |
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Identify the three categories of other underwriting expenses and give an example of each
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* Acquisition, Field Supervision, Collection Expenses - expenses incurred in relation to the production of new and renewal insurance premiums. Also includes specifically identifiable and allocated expenses relation to the following activities: commission, bonuses, allowances, and other compensation paid to agents and broker; operating costs for agencies or branch offices, training agents and brokers; underwriting new risks; issuing new policies; receiving and paying of premiums and commissions; maintaining general and detailed records; data processing; advertising and publicity; clerical, secretarial, office maintenance, supervisory, and executive duties; postage and supplies; and all other functions reasonably associated with the production of new and renewal insurance business, such as premium collection.
* General Expenses - includes all expenses not assignable to other expense groups. * Taxes, Licenses, and Fees - state and local insurance taxes, insurance department licenses and fees, allocable payroll taxes, and all other taxes excluding federal and foreign income and real estate taxes. i.e.. qualifying bond premiums, statement publication fees, advertising required by law, personal property taxes, state income taxes, capital stock taxes, business or corporation licenses or fees, marine profits taxes, documentary stamps on reinsurance, guaranty association assessments and any other taxes. 12.14 - pp(s) 27 |
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Give three examples of specifically identifiable expenses that may be incurred by one company in a company group and charged directly to another company.
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Advertising, claim adjustment expenses, commissions, brokerages, taxes, real estate, employee salaries.
12.15 - pp(s) 30 |
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Describe the differences between annual statement net income and taxable income.
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*Tax exempt interest income and depreciation expense are considered when determining taxable income, but not net income.
*Discounting of loss reserves is required in determining taxable income, but not net income. *Property/liability insurers must include 20% of the increase/decrease in their unearned premium reserves when calculating taxable income. *Property/liability insurers are required to reduce their deduction for losses incurred by 15% of the sum of the tax exempt interest and the deduction for dividends received. *Alternative minimum tax may be applied in determining taxable income. 12.16 - pp(s) 34 |
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Describe how dividends to policyholders should be reflected in financial statements.
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The amount of policy holder dividends declared and unpaid should be recorded as a liability. Incurred policy holder dividends are reported in the statement of income.
12.17 - pp(s) 37 |
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What are the essential ingredients for a successful, credible reporting process?
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Quality, timeliness, and comparability of data
13.1 - pp(s) 15 |
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What is the overriding consideration in reporting?
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Choosing the form that will most clearly and succinctly convey the message
13.2 - pp(s) 15 |
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List the insurance company functions most management reports address.
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Sales activity, underwriting activity, claims activity, loss control services, human resources activity, investment performance, and profitability measurement
13.3 - pp(s) 15 |
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List the more common insurance production measures.
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Production premium
Production units, such as policies/vehicles Face amounts of life insurance sales 13.4 - pp(s) 16 |
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The effective communication of sales activity must consider what two questions?
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At what level should sales information be reported?
How should the information be presented? 13.5 - pp(s) 17 |
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List seven ways of presenting sales information.
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Comparison of actual to planned results
Comparison of actual to prior year results Results from specific channels of distribution Results from different strategies Product and geographic mix results Trends an fluctuations that may be early indicators of changes occurring in the environment Items that may be of special interest to management 13.6 - pp(s) 18 |
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What is the single largest category of routine insurance company expenses?
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Claim settlements
13.7 - pp(s) 23 |
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List four types of claim information that are generally of interest to company decision makers.
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Number and costs of reported claims
Quality and timeliness of claims service Loss reserves Loss adjustment expense reserves 13.8 - pp(s) 24 |
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What is the traditional way to monitor claims activity?
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Analyzing the loss ratio and its components
13.9 - pp(s) 24 |
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What loss control information could be reflected in loss control management reports?
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Level, timeliness, and quality of the service provided to the customer as well as any information available on the services provided by competitors.
13.10 - pp(s) 25 |
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List the types of information contained in most companies' human resources reports.
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Salary administration records
Comparisons of internal salaries with national, local, and industry salary levels Employee training and development Employee controls and employee productivity measures Employee benefits costs and programs Average salary per employee, compared to past average salaries and to indicators of the current average level such as the consumer price index Government reports dealing with such subjects as compliance with minority hiring, Equal Opportunity (EEO), and safety regulations 13.11 - pp(s) 26 |
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The most common measure of profitability for an insurer is the:
A. Combined Ratio B. Investment Income C. Return on Equity (ROE) D. Premium to surplus ratio |
A. Combined Ratio
13.12 - pp(s) 28 |
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Identify a more comprehensive measure of insurer profitability.
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Operating gain
13.13 - pp(s) 28-29 |
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What is the standard measure of a property and liability insurer's financial strength?
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Ratio of premiums to surplus
13.14 - pp(s) 28 |
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Regardless of how profitability is defined, what items must be considered in profitability reporting?
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Underwriting results
Investment results Expenses Taxes 13.15 - pp(s) 29 |
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Responsibility accounting has three bases for determining accountability and measuring performance. Which of the following is not one of those bases?
A. Responsibility to make decisions that affect results B. Authority to carry out the plans and programs necessary to support decisions C. Determine corporate goals and plans. D. Results of decisions. |
C. Determine corporate goals and plans.
13.16 - pp(s) 30 |
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Contrast decentralized management, centralized management, and dual responsibility.
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Decentralized - branch offices are completely autonomous business centers. Management at each business center will be held responsible for all results.
Centralized - decentralized management is accountable for results of decisions and plans under their control while centralized management is accountable for results and decisions made by centralized offices. The CEO is accountable to the corporation owners for total operations and corporate strategic plans. Dual - Matrix structures classify personnel according to functional and line responsibility. Organizations with matrix structures have decentralized offices with functional, usually centralized, staff offices. Employees have a dual responsibility to their immediate line supervisor and to home office staff. 13.17 - pp(s) 30-31 |
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The type of organization where responsibility accounting frequently exists.
A. Matrix structure organizations B. Centralized organizations C. Decentralized organization D. Cost centers |
C. Decentralized organization
13.18 - pp(s) 30 |
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Decision support information differs from other management information in that:
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D. It requires information to be tailored to a unique question or situation.
13.19 - pp(s) 32 |
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What are some examples of procedural (do-first do-next) languages?
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Conventional programming languages, such as COBOL, RPG, and C handle procedural logic efficiently.
13.20 - pp(s) 34-36 |
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What kind of logic is characterized as (if-then-else)?
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A knowledge-based system has a high degree of conditional (if-then-else) logic.
13.21 - pp(s) 34 |
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What are the benefits of using knowledge-based systems?
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Consistency, efficiency, and accountability
13.22 - pp(s) 35 |
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What is the great promise of neural networks to insurance companies?
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Helping insurance organizations find out about their customers by analyzing data an organization already possesses.
13.23 - pp(s) 36 |
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How does online analytical processing (OLAP) aid in decision making?
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The ability to quickly and easily see the relationships between various elements of a business.
13.24 - pp(s) 36 |
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Describe the function of rating bureaus and the regulatory climate in which they existed prior to the 1940's.
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During the 1800's to mid 1940's, rates were set by a private association of insureds known as Rating Bureaus. They arose out of the disastrous price competition in the early years of insurance and were welcomed and sanctioned by the states as a means of assuring solvency and orderly markets.
14.1 - P 2 |
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In the early 1970's the energy crisis caused regulatory concern that automobile losses were changing quickly but statistical reporting was not sufficiently timely to respond to these changes. The result of these discussions was the industry implementation of which of the following?
A, Statistical task force B. Fast track reporting system C. Certifications of quality of data D. Schedule audit program |
B. Fast track reporting system
14.2 - P 4 |
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List the grievances of the regulators as stated in the NAIC's 1974 "Monitoring Competition" study.
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Difficulty getting prompt and adequate statistical data on rates, availability of statistics and cost to obtains detailed data. Adversarial relationship between the present statistical organizations and the regulators.
14.3 - PP 4 - 6 |
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What group authored the "cookbook," and who were its intended recipients/users?
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Statistical Agents created the 'cookbook' for regulators to assist them when they wanted to get information from the P&C statistical system.
14.4 - P 7 |
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List the other actions taken by the NAIC in the 1970's in reaction to the 1974 study.
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Re-identification of the need for the NAIC to have a standing statistical committee.
Clearinghouse for examining special calls. Model rule to require statistical reporting instead of shall. 14.5 - PP 7 - 8 |
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If the states have the power to promulgate rules, statistical plans, collect data themselves and appoint statistical agents, why isn't that done generally?
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For practical reasons the statistical plans have been promulgated by rating bureaus and statistical agents and are submitted to insurance departments for their concurrence. Changes occurs daily and it is impractical for 50 insurance departments to promulgate.
14.6 - P 8 |
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The first time that the statistical agents did not fully accept a requirement outlined in the NAIC Statistical Handbook occurred when which of the following was requested?
A. Multi-peril reporting B. Fast track reporting C. Statistical strategic planning D. Reporting personal lines experience by ZIP code |
D. Reporting personal lines experience by ZIP Code.
14.7 - P 9 |
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Explain the difference between transactional and summary reporting, naming the organization s which use each, and why this became an issue for the Statistical Strategic Plan Working Group.
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SSPWG came down in favor of transactional reporting over summary reporting because of its greater flexibility and expectation that it would be easier to audit for data quality. This met with opposition from insurers and statistical agents using summary reporting because the expense to make a transition to transactional reporting would be high.
Transactional reporting is used by ISO and AAIS, which are also advisory organizations. Summary reporting is used by ISS and NISS, which are not advisory organizations and do not need to use the data for purposes other than reports to regulators. 14.8 - P 10 |
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Enumerate the recommendations of the NAIC Strategic Statistical Plan.
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1. What the Statistical Handbook would contain. Data elements collected, standard output reports, data definitions, minimum quality standards, minimum standards for edits and controls, special calls, and advice to states on how to get data.
2. Model rule will be developed and will be the mechanism by which states can define reporting requirements and the role of the Statistical Handbook. 3. Mode rule will specify that insurers shall establish edit and audit procedures to provide certification of the quality of data reported. 4. The availability of electronic reports will be increased as states begin to prefer that format. 5. Statistical Task Force will gather programming which is developed by individual states to generate reports from unadjusted data and make these programs available to other state on an 'as-is' basis. 6. States can request statistical agents to provide reports that combine data from all statistical agents. 7. Quarterly basis, states will be provided with any proposals for changes to the Statistical Handbook, other items from the Statistical Task Force, and other materials relevant to statistical topics. 8. Volunteer group of insurers, statistical agents and others will document and track 'special calls'. The group will also assist state insurance departments who need to obtain data not available from traditional sources. 9. The Statistical Task Force will track publicly available examinations of statistical agents and keep track of those aspects of statistical agent operations that have been recently examined in a comprehensive manner. 10. No action relating to insurer ownership of or affiliation with statistical agents is recommended. 14.9 - PP 11 & 12 |
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What differences exist between statistical reporting for workers' compensation and for all other lines.
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There are more regulatory bodies involved and statistical reporting must fill the needs of advisory organizations, state departments, and workers' compensation agencies.
14.1 - P 12 |
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What type of statistical data reporting is frequently an "indication of failure" to identify and adequately plan for data needs.
A. Multi-peril crop reporting B. Special Calls C. Individual case reports D. Model rules |
B. "Special Calls"
14.11 - P 14 |
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Name some typical causes for promulgating "special calls".
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Often the result of situations where a data need is defined in a relatively short period of time and the regulators find that the "regular" statistical system cannot adequately answer the questions being raised within a "reasonable" amount of time (often less than a couple of weeks).
14.12 - P 14 |
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Describe the intellectual property legal issues and explain why there are no simple solutions.
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Intellectual property concepts include such things as copyrights, patents and trade secrets. Trade secrets defined as information that derives economic value, actual of potential, from not being disclosed. Whether some types of insurance information, such as insurer-specific ZIP Code data, is a trade secret is still unsettled.
14.13 - P 15 |
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Recount the activities and characteristics of IDMA that have made it useful for industry/regulatory interface.
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Fostering communication among data management professionals is one of the goals of IDMA. IDMA members attend data-related meetings of the NAIC and some of the more active regulators in these groups are also IDMA members. Introducing regulators to insurer data managers provides these regulators with a better understanding of insurer statistical operations.
14.14 - P 16 |
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Review the impact of technology on regulatory actions and expectations.
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Computers have decreased expense loadings and increased expectations for service as well as for the availability of information. They have almost completely removed the technical barriers that were previously imposed by the volume of information and the difficulties involved in manipulating it.
14.15 - P 17 |
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With the impulse to seek federal reinsurance to cover the future losses arising out of terrorism, the industry and state regulators have to reexamine their attitude toward federal involvement in the industry. What are the issues involved in the industry attitude toward that role, both before and after September 11, 2001?
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Prior to 9/11, insurers and stat insurance regulators opposed a federal presence in insurance regulation.
After 9/11, support for reinsurance of some sort arising out of acts of terrorism. Wide spread support of federal role in the business of insurance. 14.16 - P 17 |
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There are two points to consider in evaluation the future of regulation. Name them.
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The first is that while the underlying economic and technological forces are evolutionary, politics, crises and threats of federal intervention may cause many changes to occur in a revolutionary fashion.
The second is that a system of state regulation will always be subject to differences in politics, views and actions from state to state. 14.17 - P 19 |
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What are the benefits that can be gained from the use of cloud computing?
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Lower upfront cost, rapid scalability, and ease of implementation while also eliminating the expense related to buying and maintaining physical infrastructure.
15.1 - P 15 |
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What are some of the challenges associated with telematics that have slowed its adoption or use?
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Installation and servicing cost of telematics devices, data privacy and finding the right technology.
15.2 - P 16 |
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In the article 'Is Your Data Worth The Cost', the author outlines five 'analytical guidelines' as a starting point for an analytic project. What are these five starting points?
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Analytics should focus on actionable business objectives.
Analytics should be rooted in business fundamentals. Capturing, analyzing and distilling data to valuable information requires time and effort. Acquiring data beyond that needed to resolve business issues is a costly waste of resources. Analytics should be built into operational decisions. 15.3 - P 17 |
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What is the title or term being given to an individual who has the skills necessary to use big data technologies in performing analysis that provides competitive advantage to an organization?
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Data Scientist
15.4 - P 19 |
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What is Open Data, and what does Gartner (the research firm) proclaim about open data, relative to big data?
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Refers to the idea that certain data should be freely available to everyone to use and republish as they wish without restrictions from copyright, patents, or other forms of control. Gartner believes open data will be far more consequential for increasing revenue and business value than big data.
15.5 - P 20 |
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According to the article 'Data Quality is Not Fitness for Use', what does the author propose as a new definition of data quality?
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The extent to which the data actually represents what it purports to represent.
15.6 - P 21 |
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What are some examples of unstructured data, and what sort of opportunities can be had with mining this type of data?
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Video files, audio clips, blogs and posts, and conversations on social networking platforms.
Insights into what the customers are thinking about products and services; Understanding of customer sentiment as a feedback loop and; focusing on key influencers in social networks to improve brand perception. 15.7 - P 22 |
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What are the three principles or questions that should be addressed in order to make better use of data?
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The Goldilocks principle - how much information is just right?
The significance principle - which numbers really matter? The comprehensiveness principle - are there major gaps in your information? 15.8 - P 22 |
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How does data management play a role in Solvency II?
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Ensuring processes are in place to maintain completeness and accuracy of the data required, and applying this governance to processes that have been outsourced.
15.9 - P 23 |
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Define standards.
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Standard are a set of rules and guidelines that provide a common framework for communication.
15.1 - P 24 |
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Explain what it means to say that 'positioning in XML is not important' to its usability.
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Data is identified based on the tag name of each data element
15.11 - P 26 |
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ACORD was first established for the purpose of standardizing which of the following for the insurance industry?
A. Data B. Forms C. Rates D. Reporting |
B. Forms
15.12 - P 30 |
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Which of the following is not identified as on of ACORD's best practices for implementing insurance data standards?
A. Incorporation of data standards into your Information Technology strategy. B. Create an oversight committee C. Accept the data standards of your vendors/solutions providers D. Use data and messaging standards as a foundation for your enterprise data and messaging architecture. |
C. Accept the data standards of your vendors/solutions providers.
15.13 - P 33 |
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Identify Industry challenges that demand standards.
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1. Competition
2. Globalization and business environment 3. Customer demands 4. Evolving technology 5. Compliance 15.14 - P 34 |
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List the five benefits that are most cited by carriers who use XML.
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1. Speeds integration with external business partners.
2. Speeds integration with external technology vendors. 3. Enables internal integration between disparate systems. 4. Saves time and effort from developing internal standards. 5. Avoid internal political conflict by adopting external standards. 15.15 - P 34 |
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Name and discuss the various hurdles that stand in the way of acceptance of standards.
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1. Business partners are not yet using standards.
2. Believe it will add an unnecessary layer of complexity. 3. Already developed an internal schema. 4. Feel standards are not comprehensive yet. 5. Feel they are not fully mature. 15.16 - PP 34-35 |
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In response to ongoing changes to regulatory reporting requirements, ACORD expanded one of its departments. What is the name of that department?
A. Internal and External Integration B. Joint Architecture Group C. Legal, Industry and Government Affairs D. Oversight Committee |
C. Legal, Industry and Government Affairs
15.17 - PP 37-38 |
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The establishment of data standards requires considerable collaboration among multiple industry groups. The Workers' Compensation Insurance Organization (WCIO) is one group that participates in the development of standards. Which of the following is not a member of the WCIO?
A. ACORD B. Independent State Boards and Bureaus C. The Insurance Services Office (ISO) d. The National Council on Compensation Insurance (NCCI) |
A. ACORD
15.18 - P 38 |
