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 CSM represents the unearned profit embedded in insurance contracts, released into income as services are provided over the coverage period.

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

LAE includes all costs to investigate, defend, and settle claims, divided into allocated LAE (case-specific) and unallocated LAE (overhead).

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

The statement of cash flows reveals operating, investing, and financing cash flows, indicating actual liquidity to meet obligations.

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

In a fronting arrangement, the licensed insurer issues the policy and cedes all risk to a reinsurer but remains liable if the reinsurer defaults, creating credit risk.

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

The paid development method relies solely on actual cash payments, while the incurred method incorporates case reserves plus IBNR in the development data.

(CAS) Casualty Actuarial Society Practice Test

(CAS) Casualty Actuarial Society Practice Test

CAS Financial Analysis and Reporting 3