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
A GAP administrator's combined ratio is 108%. What does this indicate about program profitability?
Answer: The program is incurring an 8% underwriting loss
A combined ratio above 100% means expenses and losses exceed earned premiums, resulting in an underwriting loss; 108% indicates an 8-point underwriting loss before investment income.
Which financial statement line item reflects the total premiums written by a GAP program in a given period before earning adjustments?
Answer: Gross written premium
Gross written premium represents the total premium on all policies incepted during the period, before any cession to reinsurers or earning adjustments.
In GAP loss reporting, what distinguishes IBNR reserves from case reserves?
Answer: Case reserves are established for known open claims; IBNR covers losses that have occurred but not yet been reported
Case reserves are set for individual known claims, while IBNR (Incurred But Not Reported) reserves estimate losses from events that have happened but whose claims haven't yet been submitted.
A GAP portfolio shows a written premium of $2,000,000 and a paid loss of $700,000 with outstanding reserves of $150,000. What is the gross loss ratio?
Answer: 42.5%
Gross loss ratio = (paid losses + outstanding reserves) / written premium = ($700,000 + $150,000) / $2,000,000 = $850,000 / $2,000,000 = 42.5%.
For regulatory financial filing purposes, GAP products are typically reported under which statutory accounting line?
Answer: Accident and health — credit insurance or miscellaneous
GAP products are most commonly classified under accident and health credit insurance or miscellaneous lines for statutory accounting and regulatory reporting purposes.
Which trend would most likely trigger an actuarial recommendation to increase GAP rates?
Answer: Increasing LTV ratios, longer loan terms, and higher total-loss frequencies
Higher LTV ratios, longer loan terms, and increased total-loss frequency all amplify GAP exposure, which actuaries would reflect with a rate increase recommendation.
When a GAP claim is subrogated, the recovered funds are recorded as:
Answer: A reduction in incurred losses
Subrogation recoveries offset previously paid losses, reducing net incurred losses and improving the loss ratio for the period in which recovery occurs.