AIAF cheat sheet

Statutory accounting principles (SAP) emphasize conservatism and policyholder protection; assets must be admitted, and liabilities are recognized when reasonably estimable.

Written premium is recorded when a policy is issued; earned premium is recognized over the coverage period: Earned Premium = Written Premium + Beginning Unearned Premium - Ending Unearned Premium.

The unearned premium reserve (UEP) is a liability for the portion of premium not yet earned; gross UEP is reduced by ceded UEP to arrive at net UEP.

Loss reserves include case reserves for reported claims, IBNR reserves for incurred but not reported claims, and loss adjustment expense reserves.

Under SAP, acquisition costs such as commissions are expensed as incurred; under GAAP, they may be deferred and amortized as deferred acquisition costs (DAC).

Ceded reinsurance premium reduces written and earned premium, and ceded losses reduce incurred losses; ceded recoverables are admitted assets subject to credit risk.

Loss ratio = incurred losses and LAE / earned premium; expense ratio = underwriting expenses / written premium; combined ratio = loss ratio + expense ratio.

Non-admitted assets, such as furniture and equipment or overdue receivables above statutory limits, are excluded from admitted assets and therefore reduce statutory surplus.

Policyholder dividends are recognized as a liability when declared; they are not accrued before declaration under statutory accounting.

The statutory balance sheet follows Assets = Liabilities + Surplus; statutory surplus is the excess of admitted assets over liabilities and protects policyholders.

Admitted assets include bonds, stocks, mortgage loans, cash, and admitted reinsurance recoverables; non-admitted assets are excluded from the balance sheet for surplus purposes.

Underwriting income = earned premium - incurred losses - underwriting expenses; net income = underwriting income + net investment income - income taxes.

A combined ratio below 100% indicates an underwriting profit; a combined ratio above 100% indicates an underwriting loss that must be offset by investment income.

Schedule P reports loss reserve development by line of business; adverse development increases incurred losses and reduces surplus.

Schedule F reports reinsurance ceded and assumed, including unauthorized reinsurers; unauthorized reinsurance requires collateral to receive surplus credit.

IRIS ratios, such as premium to surplus and changes in surplus, flag financial trends that may warrant regulatory attention.

Risk-based capital compares total adjusted capital (TAC) to the authorized control level (ACL); the RBC ratio = TAC / ACL.

The cash flow statement separates operating cash flows from premiums and claim payments, investing cash flows, and financing cash flows.

Capital adequacy requires insurers to hold capital for underwriting, credit, and market risks; the cost of capital affects pricing, retention, and reinsurance decisions.

Reinsurance reduces earnings volatility and frees capital; ceding commissions offset acquisition costs, while the retention level balances reinsurance cost against risk reduction.

Asset-liability management matches the duration and cash flows of invested assets to expected claim payments to limit interest-rate and liquidity risk.

Duration measures a bond's price sensitivity to interest-rate changes; longer duration means greater price volatility for a given rate movement.

Liquidity management ensures cash and liquid assets are available to pay claims without forced asset sales at unfavorable prices.

Investment strategy typically allocates bonds for safety and income, stocks for growth, and real estate for diversification, subject to statutory investment limits.

Enterprise risk management identifies, measures, monitors, and manages risks across underwriting, investments, and operations to protect capital and solvency.

Expense management focuses on acquisition and general expense ratios; economies of scale and efficient distribution can improve the combined ratio.

Surplus notes are debt-like capital instruments that count as surplus; interest and principal payments require regulatory approval.

U.S. insurance regulation is primarily state-based; the NAIC develops model laws, model regulations, and the statutory Annual Statement blank.

Statutory accounting practices are prescribed by state law and regulation; publicly traded insurers may also prepare GAAP financial statements for SEC reporting.

The Annual Statement includes the balance sheet, income statement, cash flow statement, and supporting schedules such as Schedule P and Schedule F.

Risk-based capital requirements allow regulators to act when an insurer's RBC ratio falls below thresholds; the Company Action Level is 200% of the authorized control level.

Market conduct examinations review sales, underwriting, claims, and complaint-handling practices for compliance with consumer protection laws.

IFRS 17 measures insurance contracts using fulfillment cash flows, a risk adjustment, and a contractual service margin, with profit recognized over coverage.

Ethical duties include fiduciary responsibility to policyholders, fair dealing, confidentiality, and disclosure and management of conflicts of interest.

Suspected insurance fraud should be reported to state insurance departments and, where required by law, to law enforcement.

Insider trading prohibitions apply to insurer securities; material nonpublic information must not be used for trading or shared improperly.