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

GAAP requires P&C insurers to earn premium ratably over the exposure period of the policy.

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

Schedule P presents paid and incurred loss development triangles used to evaluate reserve adequacy over time.

Question 3

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

Accepted Answer

Underwriting operations are generating a loss

Answer

A combined ratio above 100% means underwriting expenses and losses exceed earned premiums, indicating an underwriting loss.

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

Under SAP, policy acquisition costs are expensed immediately (conservatism), whereas GAAP defers them as DAC and amortizes over the policy period.

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

Surplus as regards policyholders is the statutory equivalent of equity, calculated as admitted assets minus total liabilities.

(CAS) Casualty Actuarial Society Practice Test