CAS Exam 6 (US) flashcards
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- Statutory accounting principles
- The NAIC-prescribed accounting basis used in statutory financial statements; it is conservative and oriented toward policyholder protection and solvency rather than matching revenues with expenses.
- Nonadmitted assets
- Assets that statutory accounting excludes from the balance sheet because they are not readily available to pay claims, such as furniture, overdue premiums, and certain agent balances.
- Statutory surplus
- Admitted assets minus statutory liabilities; it is the statutory equivalent of shareholders' equity and the primary measure regulators watch for solvency.
- Risk-Based Capital formula
- An NAIC formula that sets capital requirements based on asset, credit, underwriting, and other risks, producing an authorized control level used to compute the RBC ratio.
- Company action level
- The RBC threshold at 200% of the authorized control level; falling below it requires the insurer to file a corrective action plan with its domiciliary commissioner.
- Authorized control level
- The base RBC amount derived from the risk-based capital formula; other regulatory action levels are multiples of this quantity.
- Mandatory control level
- The RBC threshold at 70% of the authorized control level; below it the commissioner is authorized to place the insurer under regulatory control.
- IRIS ratios
- A set of financial ratios computed by the NAIC from statutory data; values outside normal ranges flag an insurer for regulatory review but are not conclusive.
- Annual Statement blank
- The NAIC-prescribed statutory financial reporting form filed annually with the domiciliary state, including balance sheet, income statement, and supporting schedules.
- Extraordinary dividend
- A dividend exceeding state statutory limits, which requires prior approval of the insurance commissioner before payment to shareholders.
- Guaranty association
- A state-mandated entity that pays covered claims of insolvent insurers, funded by assessments on solvent insurers writing the same lines in that state.
- Unauthorized reinsurer
- A reinsurer not licensed in the ceding insurer's state; the ceding insurer must hold collateral to take statutory credit for the reinsurance.
- Funds withheld
- A collateral arrangement in which the ceding insurer retains funds owed to an unauthorized reinsurer, allowing statutory reserve credit for the ceded business.
- Schedule F
- The statutory annual statement schedule that reports ceded reinsurance, including balances due from and to reinsurers and collateral held for unauthorized reinsurers.
- Loss reserve discounting
- A statutory adjustment that reduces carried loss reserves to present value for certain lines, reflecting the time value of money in statutory reporting.
- Premium-to-surplus ratio
- Net written premium divided by statutory surplus; a high ratio signals leverage and possible dependence on reinsurance or thin capital.
- Combined ratio
- The sum of the loss and expense ratios; a value above 100% indicates an underwriting loss before investment income is considered.
- Deferred acquisition costs
- Under GAAP, costs of acquiring business are capitalized and amortized; statutory accounting generally expenses them as incurred, producing lower early statutory earnings.
- Policyholders' surplus
- A statutory reporting term for the excess of admitted assets over liabilities, representing the buffer available to absorb unexpected losses.
- Market conduct examination
- A state regulator's review of an insurer's sales, underwriting, and claims practices for compliance with insurance laws and consumer protection rules.
- Financial examination
- A periodic on-site review by state regulators of an insurer's financial condition, records, and statutory reporting, often coordinated through the NAIC.
- Holding company registration
- A filing required of insurers within an insurance holding company system, disclosing affiliates, transactions, and ownership to the domiciliary regulator.
- Affiliate transaction approval
- Rules requiring notice or approval before certain transactions between an insurer and its affiliates, to prevent improper transfer of value out of the insurer.
- SEC Form 10-K
- The annual report public insurers file with the SEC under GAAP, distinct from the statutory annual statement filed with state regulators.
- Solvency regulation
- The state-based framework focused on insurer ability to meet obligations, using capital requirements, examinations, and early-warning ratios as tools.
- NAIC
- The National Association of Insurance Commissioners, which develops model laws, statutory accounting guidance, and reporting blanks that states may adopt.
- State accreditation
- A NAIC program certifying that a state's insurance department meets standards for financial regulation, solvency oversight, and examination practices.
- Reserve adequacy opinion
- A statement by a qualified actuary, filed with the statutory annual statement, opining on whether carried loss and loss adjustment expense reserves are reasonable.
- Loss adjustment expense
- Costs of investigating, defending, and settling claims, reported separately from losses in statutory statements and included in reserve adequacy analysis.
- Written versus earned premium
- Written premium reflects policies issued in the period; earned premium reflects coverage provided, and the difference flows through unearned premium reserves.
- Unearned premium reserve
- A statutory liability representing premium received for coverage not yet provided, generally earned pro rata over the policy term.
- Rehabilitation versus liquidation
- Rehabilitation aims to restore an insurer to solvency under court supervision; liquidation winds down the company and distributes assets to claimants.