CAS Financial Analysis and Reporting 3

Question 1

Under IFRS 17, what is the 'contractual service margin' (CSM)?

Accepted Answer

The unearned profit on insurance contracts recognized over the coverage period

Answer

The difference between incurred losses and paid losses

Answer

The present value of future claim payments

Answer

The risk adjustment for non-financial risk

Question 2

What is 'loss adjustment expense' (LAE) in insurance financial reporting?

Accepted Answer

The cost of settling and defending claims, both allocated and unallocated

Answer

The difference between written and earned premiums

Answer

Investment expenses related to the claims portfolio

Answer

Reinsurance premiums ceded for excess losses

Question 3

Which financial statement best reflects an insurer's ability to pay claims as they come due?

Accepted Answer

Statement of cash flows

Answer

Income statement

Answer

Balance sheet equity section

Answer

Underwriting gain/loss exhibit

Question 4

In insurance accounting, what is 'fronting' and its key financial reporting implication?

Accepted Answer

An insurer issues a policy but cedes 100% of risk to a reinsurer; the cedant retains credit risk

Answer

A reinsurer assumes 100% of premium without issuing a policy

Answer

An insurer underreports premiums to avoid regulatory review

Answer

A method of deferring loss recognition to future periods

Question 5

How does the 'paid loss development method' differ from the 'incurred loss development method'?

Accepted Answer

Paid method uses only cash payments; incurred method includes case reserves and IBNR estimates

Answer

Paid method uses case reserves; incurred method excludes IBNR

Answer

Paid method is required under GAAP; incurred method is required under SAP

Answer

There is no practical difference between the two methods

Question 6

What does the 'operating ratio' measure for a P&C insurer?

Accepted Answer

Combined ratio minus the net investment income ratio

Answer

Net investment income as a percentage of surplus

Answer

The ratio of operating expenses to total assets

Answer

Premium growth rate relative to industry average

Question 7

Which NAIC IRIS ratio is used to detect rapid premium growth that may signal underwriting risk?

Accepted Answer

Change in net premiums written ratio

Answer

Two-year overall operating ratio

Answer

Estimated current reserve deficiency ratio

Answer

Investment yield ratio