Financial Analysis & Reporting Flashcards
7 cards from real GAP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Analysis & Reporting flashcards as text
When analyzing a GAP claim, which financial metric best measures a vehicle's rate of depreciation during the first year of ownership?
Answer: Depreciation percentage relative to MSRP
Depreciation percentage relative to MSRP directly measures how much value a vehicle has lost from its original price, which is the key driver of the GAP exposure.
A lender reports an average GAP claim payout of $3,200 on a portfolio of 500 vehicles. If 40 claims were filed, what is the claim frequency rate?
Answer: 8%
Claim frequency rate = (number of claims / total policies) × 100 = (40 / 500) × 100 = 8%.
In GAP financial reporting, 'net loss ratio' is defined as:
Answer: Total claims minus reinsurance recoveries divided by premiums
Net loss ratio accounts for reinsurance recoveries subtracted from total claims, then divided by earned premiums, giving a truer picture of underwriting performance.
Which accounting method is most appropriate for recognizing GAP premium revenue over the policy term?
Answer: Straight-line earned premium method
The straight-line earned premium method recognizes revenue evenly across the policy period, matching revenue with the period of coverage provided.
A GAP administrator's monthly financial report shows a 'deficiency reserve.' What does this reserve represent?
Answer: The shortfall between reported reserves and actuarially indicated reserves
A deficiency reserve is established when the carried reserve is insufficient relative to the actuarially required amount, representing the funding gap that must be corrected.
When reviewing a GAP portfolio's loss development triangle, what does adverse development indicate?
Answer: Actual losses are emerging higher than prior estimates
Adverse loss development means actual incurred losses for prior accident periods are increasing beyond earlier estimates, signaling reserve inadequacy.
Which financial ratio is most critical when evaluating the solvency of a GAP reinsurance carrier?
Answer: Risk-based capital (RBC) ratio
The Risk-Based Capital ratio measures an insurer's capital relative to its risk exposure and is the primary regulatory solvency metric for insurance and reinsurance carriers.