Financial Analysis and Reporting Flashcards
7 cards from real CAS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Analysis and Reporting flashcards as text
What is the 'appointed actuary's' primary responsibility under the NAIC Model Actuarial Opinion and Memorandum Regulation?
Answer: Opining on whether the insurer's loss and LAE reserves are fairly stated in accordance with accepted actuarial standards
The appointed actuary must render an actuarial opinion on reserve adequacy and prepare a detailed actuarial opinion memorandum (AOM) supporting that opinion.
Which accounting treatment applies to 'salvage and subrogation' recoveries under GAAP for P&C insurers?
Answer: Estimated and accrued as a reduction to the loss reserve liability when probable and estimable
GAAP requires insurers to estimate probable salvage and subrogation recoveries and record them as a reduction to gross loss reserves, matching the related loss recognition.
How does 'discounting of loss reserves' affect a P&C insurer's statutory balance sheet?
Answer: Discounting reduces the present value of reserves, increasing statutory surplus compared to undiscounted reserves
When permitted, discounting reduces recorded reserves to present value, which increases the apparent surplus; however, SAP generally prohibits discounting except for specific long-tail lines.
Under the CAS syllabus, what does 'loss sensitive business' refer to in financial analysis?
Answer: Business where the final premium or profit commission adjusts based on actual loss experience
Loss sensitive plans, such as retrospective rating, large deductible policies, and profit-sharing arrangements, tie premium or compensation to actual loss outcomes.
What is the purpose of the 'risk adjustment for non-financial risk' required under IFRS 17?
Answer: To reflect the compensation an insurer requires for bearing uncertainty in the amount and timing of future cash flows from non-financial risks
The IFRS 17 risk adjustment reflects the benefit the insurer derives from having a diversified portfolio and the premium it demands for bearing non-financial uncertainty.
A P&C insurer reports a high 'reserve development to surplus' ratio in the NAIC IRIS tests. What does this signal?
Answer: Prior reserve estimates were materially inadequate, which may indicate ongoing reserve deficiencies and solvency concerns
Significant adverse reserve development relative to surplus suggests the insurer historically underestimated its liabilities, raising concerns about current reserve adequacy.
Which of the following best explains the 'equity method' of accounting for an insurer's ownership stake in a subsidiary?
Answer: The insurer records its proportionate share of the subsidiary's earnings or losses, adjusting the carrying value of the investment
Under the equity method (typically applied to 20–50% ownership), the investor recognizes its share of investee earnings, adjusting the investment's carrying value accordingly.