ACE Financial Analysis & Valuation 3

Question 1

Which ACORD form element is critical when capturing data needed to calculate the earned premium for a mid-term policy change?

Accepted Answer

Effective date of the endorsement and pro-rata factors

Answer

To calculate earned premium for a mid-term change, you need the endorsement effective date and the applicable pro-rata or short-rate factor.

Question 2

What does adverse loss development indicate in the context of insurance financial analysis?

Accepted Answer

Original loss reserves were understated, requiring upward revision

Answer

Adverse loss development occurs when actual claims exceed original reserve estimates, forcing the insurer to increase reserves and recognize additional losses.

Question 3

A reinsurance treaty with a 70% quota share arrangement means:

Accepted Answer

The reinsurer assumes 70% of premiums and losses on covered policies

Answer

In a quota share treaty, the reinsurer takes a fixed percentage (70%) of both premiums and losses on the covered business.

Question 4

Which financial metric best measures an insurer's investment portfolio efficiency?

Accepted Answer

Net investment yield (investment income / average invested assets)

Answer

Net investment yield measures how effectively an insurer generates income from its invested assets relative to the portfolio's total value.

Question 5

When performing a price-to-book (P/B) valuation for a property & casualty insurer, what book value adjustment is typically needed?

Accepted Answer

Mark loss reserves to fair value and adjust for reserve adequacy

Answer

P/B valuations for P&C insurers require adjusting stated book value for the difference between carried reserves and actuarially estimated reserve adequacy.

(ACE) ACORD Certified Expert Practice Test

(ACE) ACORD Certified Expert Practice Test

ACE Financial Analysis & Valuation 3