CFE Statutory Accounting Principles & Insurance Financial Statements 2

Question 1

What is an 'unearned premium reserve' in insurance statutory accounting?

Accepted Answer

The portion of collected premiums applicable to the unexpired portion of a policy

Answer

The unearned premium reserve represents premiums already collected but attributable to future coverage periods—if a policy is cancelled, this portion would be refunded to the policyholder.

Question 2

What does 'Schedule D' of the NAIC Annual Statement report?

Accepted Answer

Investment holdings including bonds and stocks

Answer

Schedule D of the NAIC Annual Statement reports the insurer's investment portfolio, including bonds (Part 1) and common and preferred stocks (Part 2), detailing each holding.

Question 3

What does the 'combined ratio' measure in property-casualty insurance?

Accepted Answer

The sum of the loss ratio and the expense ratio

Answer

The combined ratio is the sum of the loss ratio (losses incurred/premiums earned) and expense ratio (expenses/premiums written); a ratio below 100% indicates underwriting profitability.

Question 4

What is 'loss development' in the context of insurance reserving?

Accepted Answer

The change in estimated ultimate claim costs as more information emerges over time

Answer

Loss development refers to how initial claim estimates change (typically increase) as claims mature and more information about their ultimate cost becomes available to the insurer.

Question 5

What is 'reinsurance ceded' from the perspective of a primary insurer?

Accepted Answer

Risk transferred to a reinsurer in exchange for a reinsurance premium

Answer

'Reinsurance ceded' represents the portion of risk that a primary (ceding) insurer transfers to a reinsurer, reducing its net exposure in exchange for paying a reinsurance premium.

(CFE) Certified Financial Examiner Practice Test

(CFE) Certified Financial Examiner Practice Test

CFE Statutory Accounting Principles & Insurance Financial Statements 2