GAP Financial Analysis & Reporting 3

Question 1

A vehicle is totaled with an ACV of $18,000 and an outstanding loan balance of $22,500. The primary insurer pays $18,000. What is the GAP benefit payable before any applicable deductible waiver?

Accepted Answer

$4,500

Answer

GAP benefit = outstanding loan balance minus ACV insurance payout = $22,500 − $18,000 = $4,500.

Question 2

For GAAP financial statement purposes, how should unearned GAP premiums be classified on the balance sheet?

Accepted Answer

As a current liability

Answer

Unearned premiums represent obligations to provide future coverage and are classified as current liabilities because they are expected to be earned within 12 months for most GAP terms.

Question 3

Which of the following best describes a 'ceded loss ratio' in GAP reinsurance reporting?

Accepted Answer

Losses transferred to reinsurers divided by ceded premiums

Answer

The ceded loss ratio measures the losses passed to reinsurers relative to the premiums ceded to those reinsurers, indicating the value of the reinsurance arrangement.

Question 4

An actuarial analysis of a GAP book reveals an ultimate loss pick of 45% of earned premium. If the carried loss reserve is 40%, what action is required?

Accepted Answer

Strengthen the reserve by 5 points

Answer

When the actuarially indicated ultimate loss ratio (45%) exceeds the carried reserve ratio (40%), the administrator must strengthen reserves to avoid understatement of liabilities.

Question 5

In GAP program financial analysis, which metric is used to evaluate the effectiveness of a dealer's cancellation and refund processing?

Accepted Answer

Cancellation refund turnaround time and accuracy rate

Answer

Cancellation refund turnaround time and accuracy rate directly measures how efficiently and correctly dealers and administrators process pro-rata or short-rate refunds upon early contract termination.

(GAP) Guaranteed Asset Protection Certified Practice Test

(GAP) Guaranteed Asset Protection Certified Practice Test

GAP Financial Analysis & Reporting 3