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
Under IFRS 17, what is the 'contractual service margin' (CSM)?
Answer: The unearned profit on insurance contracts recognized over the coverage period
The CSM represents the unearned profit embedded in insurance contracts, released into income as services are provided over the coverage period.
What is 'loss adjustment expense' (LAE) in insurance financial reporting?
Answer: The cost of settling and defending claims, both allocated and unallocated
LAE includes all costs to investigate, defend, and settle claims, divided into allocated LAE (case-specific) and unallocated LAE (overhead).
Which financial statement best reflects an insurer's ability to pay claims as they come due?
Answer: Statement of cash flows
The statement of cash flows reveals operating, investing, and financing cash flows, indicating actual liquidity to meet obligations.
In insurance accounting, what is 'fronting' and its key financial reporting implication?
Answer: An insurer issues a policy but cedes 100% of risk to a reinsurer; the cedant retains credit risk
In a fronting arrangement, the licensed insurer issues the policy and cedes all risk to a reinsurer but remains liable if the reinsurer defaults, creating credit risk.
How does the 'paid loss development method' differ from the 'incurred loss development method'?
Answer: Paid method uses only cash payments; incurred method includes case reserves and IBNR estimates
The paid development method relies solely on actual cash payments, while the incurred method incorporates case reserves plus IBNR in the development data.
What does the 'operating ratio' measure for a P&C insurer?
Answer: Combined ratio minus the net investment income ratio
The operating ratio equals the combined ratio minus the net investment income ratio, measuring overall operating profitability including investment returns.
Which NAIC IRIS ratio is used to detect rapid premium growth that may signal underwriting risk?
Answer: Change in net premiums written ratio
The change in net premiums written ratio flags insurers whose premium volume has grown rapidly, which may indicate underwriting standards have been relaxed.