Financial Analysis & Valuation Flashcards
7 cards from real ACE 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 & Valuation flashcards as text
Which actuarial method spreads historical loss data diagonally to estimate ultimate losses for each accident year?
Answer: Chain-ladder (development) method
The chain-ladder method uses development factors derived from historical loss triangles to project each accident year's losses to their ultimate value.
An insurer's statutory surplus decreased by 15% year-over-year despite positive net income. Which scenario BEST explains this?
Answer: Unrealized investment losses reduced surplus directly under statutory accounting
Under statutory accounting, unrealized investment losses flow directly through surplus rather than through the income statement, which can reduce surplus even when net income is positive.
What is the primary purpose of a Schedule F in a statutory annual statement?
Answer: Report reinsurance transactions and measure reinsurance recoverables
Schedule F of the statutory annual statement details an insurer's reinsurance assumed and ceded transactions, including reinsurance recoverables from reinsurers.
When an insurance holding company acquires a subsidiary, which goodwill treatment differs between GAAP and statutory accounting?
Answer: GAAP capitalizes goodwill subject to impairment testing; statutory amortizes it over a fixed period
Under GAAP, goodwill is carried indefinitely and tested for impairment; under statutory accounting, goodwill is amortized over a maximum period (typically 10 years).
In evaluating an insurer's catastrophe exposure, which metric measures the maximum probable loss at a specific probability level?
Answer: Value at Risk (VaR) or Probable Maximum Loss (PML)
Probable Maximum Loss (PML) or Value at Risk (VaR) at a given return period quantifies the catastrophe loss an insurer could sustain at a specific confidence level.
Which ratio measures how efficiently an insurer converts premium revenue into underwriting income?
Answer: Underwriting profit margin
The underwriting profit margin (underwriting income divided by net premiums earned) directly measures what percentage of premiums becomes underwriting profit.
Under ACORD data standards, what role does the 'risk information' segment play in commercial insurance financial transactions?
Answer: It captures exposure data needed for accurate premium calculation and risk assessment
The risk information segment in ACORD commercial lines data standards captures the exposure characteristics (e.g., property values, payroll, revenue) that underwriters use to calculate premiums.