CAS Financial Analysis and Reporting 2

Question 1

Under GAAP, which method must property-casualty insurers use to recognize premium revenue?

Accepted Answer

Earn premium ratably over the policy period

Answer

Recognize all premium at policy inception

Answer

Recognize premium only upon claims payment

Answer

Defer all premium until policy expiration

Question 2

What is the primary purpose of the Schedule P in the NAIC Annual Statement?

Accepted Answer

Display loss and loss adjustment expense development triangles

Answer

Report investment income by asset class

Answer

Summarize reinsurance ceded transactions

Answer

Show premium written by state jurisdiction

Question 3

An insurer's combined ratio is 108%. What does this indicate?

Accepted Answer

Underwriting operations are generating a loss

Answer

The insurer is profitable before investment income

Answer

Investment returns exceed underwriting losses

Answer

The insurer's surplus is growing

Question 4

Which statutory accounting principle (SAP) differs most significantly from GAAP regarding policy acquisition costs?

Accepted Answer

SAP expenses acquisition costs immediately, while GAAP defers and amortizes them

Answer

SAP requires amortization of acquisition costs over the policy term

Answer

SAP and GAAP treat acquisition costs identically

Answer

SAP capitalizes acquisition costs as intangible assets

Question 5

In the NAIC Annual Statement, what does 'surplus as regards policyholders' represent?

Accepted Answer

The excess of admitted assets over liabilities, equivalent to statutory net worth

Answer

Total liabilities minus total admitted assets

Answer

Unearned premium reserve plus loss reserves

Answer

Net premiums written in the calendar year

Question 6

Which ratio measures how efficiently an insurer uses its surplus to write business?

Accepted Answer

Premium-to-surplus ratio

Answer

Loss ratio

Answer

Expense ratio

Answer

Operating ratio

Question 7

What is the effect of adverse loss development on an insurer's statutory surplus?

Accepted Answer

Surplus decreases because additional reserve additions reduce net income

Answer

Surplus increases as reserves are strengthened

Answer

Surplus is unaffected until claims are paid

Answer

Surplus increases due to the tax benefit of higher reserves