GAP Financial Analysis & Reporting 4

Question 1

A GAP administrator's combined ratio is 108%. What does this indicate about program profitability?

Accepted Answer

The program is incurring an 8% underwriting loss

Answer

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.

Question 2

Which financial statement line item reflects the total premiums written by a GAP program in a given period before earning adjustments?

Accepted Answer

Gross written premium

Answer

Gross written premium represents the total premium on all policies incepted during the period, before any cession to reinsurers or earning adjustments.

Question 3

In GAP loss reporting, what distinguishes IBNR reserves from case reserves?

Accepted Answer

Case reserves are established for known open claims; IBNR covers losses that have occurred but not yet been reported

Answer

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.

Question 4

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?

Accepted Answer

42.5%

Answer

Gross loss ratio = (paid losses + outstanding reserves) / written premium = ($700,000 + $150,000) / $2,000,000 = $850,000 / $2,000,000 = 42.5%.

Question 5

For regulatory financial filing purposes, GAP products are typically reported under which statutory accounting line?

Accepted Answer

Accident and health — credit insurance or miscellaneous

Answer

GAP products are most commonly classified under accident and health credit insurance or miscellaneous lines for statutory accounting and regulatory reporting purposes.

(GAP) Guaranteed Asset Protection Certified Practice Test

(GAP) Guaranteed Asset Protection Certified Practice Test

GAP Financial Analysis & Reporting 4