GAP Financial Analysis & Reporting 2

Question 1

When analyzing a GAP claim, which financial metric best measures a vehicle's rate of depreciation during the first year of ownership?

Accepted Answer

Depreciation percentage relative to MSRP

Answer

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.

Question 2

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?

Accepted Answer

8%

Answer

Claim frequency rate = (number of claims / total policies) × 100 = (40 / 500) × 100 = 8%.

Question 3

In GAP financial reporting, 'net loss ratio' is defined as:

Accepted Answer

Total claims minus reinsurance recoveries divided by premiums

Answer

Net loss ratio accounts for reinsurance recoveries subtracted from total claims, then divided by earned premiums, giving a truer picture of underwriting performance.

Question 4

Which accounting method is most appropriate for recognizing GAP premium revenue over the policy term?

Accepted Answer

Straight-line earned premium method

Answer

The straight-line earned premium method recognizes revenue evenly across the policy period, matching revenue with the period of coverage provided.

Question 5

A GAP administrator's monthly financial report shows a 'deficiency reserve.' What does this reserve represent?

Accepted Answer

The shortfall between reported reserves and actuarially indicated reserves

Answer

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.

(GAP) Guaranteed Asset Protection Certified Practice Test

(GAP) Guaranteed Asset Protection Certified Practice Test

GAP Financial Analysis & Reporting 2