Financial Analysis & Planning Flashcards
7 cards from real RIMS 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 & Planning flashcards as text
What is the primary purpose of loss triangles (development triangles) in risk management financial analysis?
Answer: To project ultimate losses by tracking how losses develop over time
Loss development triangles track cumulative losses by accident year and development period, enabling actuaries to estimate ultimate loss amounts as claims mature.
A captive insurer holds $10M in loss reserves and $2M in unearned premium reserves. Its surplus is $5M. What is the captive's reserve-to-surplus ratio?
Answer: 2.4
Reserve-to-surplus ratio = (loss reserves + unearned premium reserves) / surplus = ($10M + $2M) / $5M = 2.4.
Which risk financing technique allows a company to pre-fund expected losses in a tax-advantaged offshore structure?
Answer: Funded captive insurance company
A funded captive accumulates pre-funded reserves in an offshore domicile, potentially deferring taxes on loss reserves until claims are paid.
When evaluating insurer financial strength, which ratio most directly indicates an insurer's ability to pay claims from current assets?
Answer: Quick ratio (acid-test ratio)
The quick ratio measures liquid assets relative to current liabilities, indicating whether an insurer can meet near-term claim obligations without liquidating long-term investments.
In insurance financial analysis, what does a 'loss ratio' of 0.65 indicate?
Answer: 65 cents of every premium dollar is paid out in losses
A loss ratio of 0.65 means that for every dollar of earned premium, 65 cents is paid out as losses and loss adjustment expenses.
A risk manager is analyzing which retention level to select for a workers' compensation program. Which analytical tool best models the probability distribution of aggregate annual losses?
Answer: Monte Carlo simulation
Monte Carlo simulation generates thousands of loss scenarios by randomly sampling from frequency and severity distributions, producing a full probability distribution of aggregate annual losses.
Which accounting standard requires companies to disclose the fair value of contingent liabilities, including self-insured loss estimates, in financial statement footnotes?
Answer: ASC 450 (formerly SFAS 5)
ASC 450 (Contingencies) requires accrual of loss contingencies when a loss is probable and can be reasonably estimated, with footnote disclosure for reasonably possible losses.