
NAIC AS and IEE (2005)
Detail Outline for Exam 7 – 2007 Part D
 NAIC AS and IEE – note this is from 2003. Page #s in 2006 can be different.
AS – 2003
Signature Page (Page 1)
Assets (Page 2) (IASA 2)
Liabilities, Surplus, and Other Funds (Page 3) (IASA 5)
Underwriting and Investment Exhibit (Page 4)
Statement of Income: U/W-ing income; Investment Income; Other Income (IASA 10);
Capital and Surplus Account: Gains and (Losses) in Surplus (IASA 10).
Cash Flow (Page 5)
Part 1 – Premiums Earned (Page 6) – pulls in 1A and 1B to calculate EP.
Part 1A – Recapitulation of All Premiums (Page 7) – calculated UPRs.
Part 1B – Premiums Written (Page 8) – Direct + Assumed – Ceded = Net.
Part 2 – Losses Paid and Incurred (Page 9)
Part 2A – Unpaid Losses and Loss Adjustment Expenses (Page 10)
Part 3 – Expenses (Page 11) (LAE paid)
Exhibit of Net Investment Income (Page 12)
Exhibit of Capital Gains (Losses) – Realized gains only.
Exhibit 1 – Analysis of Nonadmitted Assets and Related Items (Page 13)
Notes (none given here) (Page 14) (Need to know Notes 23-27, 32, and 33 - 2004)
23. Reinsurance (Unsecured Reinsurance Recoverables; Reinsurance Recoverables in
Dispute; Reinsurance Assumed and Ceded; Uncollectible Reinsurance; Commutation of
Ceded Reinsurance; Retroactive Reinsurance; Reinsurance Accounted for as a Deposit).
24. Retrospectively Rated Contracts and Contracts Subject to Redetermination
25. Changes in Incurred Losses and Loss Adjustment Expenses
26. Intercompany Pooling Arrangements
27. Structured Settlements
32. Discounting of Liabilities for Unpaid Losses and Unpaid LAE
33. Asbestos/Environmental Reserves
Don’t need to know Pages 15-27 (unless discussed in another paper)
Schedule D
Summary by Country (Page 28) – Long-Term Bonds and Stocks
Verification Between Years
Part 1A – Section 1 (Page 29-31) – Bonds – (NAIC) Quality & Maturity
NAIC classes defined as follows:
1. Highest Quality
2. High Quality
3. Medium Quality
4. Low Quality
5. Lower Quality
6. Bonds in or near Default
Part 1A – Section 2 (Page 32-34) – Bonds – Maturity by Type & Subtype
Schedule DA – Part 2 (Page 35) (may not need to know these)

NAIC AS and IEE (2005)
Schedule DB (Page 36) (may not need to know these)
Part A – Verification Between Years
Part B – Verification Between Years
Part C – Verification Between Years (Page 37)
Part D – Verification Between Years
Part E – Verification
Part F – Section 1 (Page 38)
Part F – Section 2 (Page 39)
Schedule F
Part 1 (Page 40)
Part 2 (Page 41)
Part 3 (Page 42)
Part 4 (Page 43)
Part 5 (Page 44)
Part 6 (Page 45)
Part 7 (Page 46) (May not need to know)
Part 8 (Page 47) (May not need to know)
Schedule H – Accident and Health Exhibit
Part 1. Analysis of Underwriting Operations (Page 48)
Part 2. Reserves and Liabilities (Page 49)
Part 3. Test of Prior Year’s Claim Reserves and Liabilities
Part 4. Reinsurance
Part 5. Health Claims (Page 50)
Schedule P – Analysis of Losses and Loss Expenses (Page 51)
Part 1 – Summary (Page 51)
Part 2 – Summary (Page 52)
Part 3 – Summary
Part 4 – Summary
Part 1A – Homeowners/Farmowners (Page 53)
Part 1B – Private Passenger Auto Liability/Medical (Page 54)
Part 1C – Commercial Auto/Truck Liability/Medical (Page 55)
Part 1D – Workers’ Compensation (Page 56)
Part 1E – Commercial Multiple Peril (Page 57)
Part 1F – Section 1 – Medical Malpractice – Occurrence (Page 58)
Part 1F – Section 2 – Medical Malpractice – Claims-Made (Page 59)
Part 1G – Special Liability (OM, Aircraft (All Perils), B&M) (Page 60)
Part 1H – Section 1 – Other Liability – Occurrence (Page 61)
Part 1H – Section 2 – Other Liability – Claims-Made (Page 62)
Part 1I – Special Property (Fire, Allied Lines, IM, EQ, Burglary and Theft) (Page
63)
Part 1J – Auto Physical Damage (Page 64)
Part 1K – Fidelity/Surety (Page 65)
Part 1L – Other (Including Credit, Accident and Health) (Page 66)
Part 1M – International (Page 67)
Part 1N – Reinsurance – Nonproportional Assumed Property (Page 68)
Part 1O – Reinsurance – Nonproportional Assumed Liability (Page 69)

NAIC AS and IEE (2005)
Part 1P – Reinsurance – Nonproportional Assumed Financial Lines (Page 70)
Part 1R – Section 1 – Products Liability – Occurrence (Page 71)
Part 1R – Section 2 – Products Liability – Claims-Made (Page 72)
Part 1S – Financial Guaranty/Mortgage Guaranty (Page 73)
Parts 2A – 2S (Pages 74-78)
Parts 3A – 3S (Pages 79-83)
Parts 4A – 4S (Pages 84-88)
Part 5A (HO/FO) (Page 89)
Section 1
Section 2
Section 3
Parts 5B – 5R (Pages 90-99): missing 5G, 5I, 5J, 5K, 5L, 5M, 5N, 5O, 5P, 5S
Part 6C (CAL/Medical) (Page 100)
Section 1
Section 2
Parts 6D – 6S (Pages 100-104): missing 6A, 6B, 6F, 6G, 6I, 6J, 6K, 6L, 6P, 6S
Part 7A – Primary Loss Sensitive Contracts (Page 105)
Section 1
Section 2
Section 3
Section 4 (Page 106)
Section 5
Part 7B – Reinsurance Loss Sensitive Contracts (Page 107)
Section 1
Section 2
Section 3
Section 4 (Page 108)
Section 5
Section 6
Section 7
Sch P Interrogatories (Page 109) (descriptions from Feldblum)
#1: a 10-yr exhibit of extended loss and expense reserves on CM policies for
med mal, other liability, and products liability by exposure years.
#2: discloses whether or not company complied w/ 1998 ULAE definitions.
#3: relates to the distribution of AAO expenses and reserves by AY.
#4: discloses loss reserve discounting & the resulting difference between the
U/W-ing and Investment Exhibit and Sch P.
#5: Discloses net premiums in force for fidelity & surety business.
#6: discloses whether claim counts are per claim or per claimant.
#7: a general question about reserve adequacy.
Don’t need to know Pages 110-114
Schedule D – (Pages E-08 – E-14)
Part 1 (Bonds) (Page E-08)
Part 2 – Section 1 (Preferred Stocks) (Page E-09)
Part 2 – Section 2 (Common Stocks) (Page E-10)
Part 3 (Acquired) (Page E-11)

NAIC AS and IEE (2005)
Part 4 (Sold, Redeemed, Disposed of) (Page E-12)
Part 5 (Acquired then Disposed of during year) (Page E-13)
Part 6 – Section 1 (Page E-14)
Part 6 – Section 2
Pages included in Combined Annual Statement: Title Page; Assets;
Liabilities/Surplus/Other Funds; Statement of Income; Cash Flow; U/W & Investment
Parts 1 – 3; Exhibit of Net Investment Income; Exhibit of Capital Gains (Losses); Sch D:
Summary by Country, 1A-1 and 2; Sch F: 1,2,3,4,5,6,7; Sch H: 1 through 4; Sch P except
interrogatories; Sch T, Sch Z; Sch D: 1 & 2; IEE
Insurance Expense Exhibit – 2003
Title (IEE-1)
Interrogatories (IEE-2)
Part I – Allocation to Expense Groups (IEE-3)
Part II – Allocation to Lines of Business Net of Reinsurance (IEE-4 – IEE-5)
Part III – Allocation to Lines of Direct Business Written (IEE-6 – IEE-7)
Overflow Page for Write-ins (IEE-8)
 Feldblum (Sch F), "Reinsurance Accounting: Schedule F" – W
Introduction
Purposes of Schedule F
Parts 1-3 provide supporting data for assumed and ceded accounting entries.
Parts 4-7 develop the provision for reinsurance.
Part 8 restates the statutory B/S from a net to a gross basis.
Note: Unlike other schedules, Sch. F reports all lines combined.
Part 1: Assumed Reinsurance
Parts 1 and 3 do not contain retroactive reinsurance – which is handled in the special surplus
entry in liabilities in the stat B/S (page 3).
Four types of assumed reinsurance entries:
Losses payable on paid losses and case reserves.
Premiums assumed, the UE portions of premium, and assumed premiums uncollected.
Contingent commissions receivable/payable.
Security, funds deposited with reinsured company.
Losses Payable
Col 6 (paid losses & LAE) matches line 2 of page 3.
Col 7 (known case losses and LAE) is similar to col 2 total on U/W&Investment Exh,
Part 2A. But the U/W Exhibit doesn’t include LAE.
IBNR losses are in col 6 on U/W&Investment Exh, but not in Sch F, Part 1. Also,
reinsurance losses paid during the year are not in Sch F.
Premiums and Commissions
Col 9: Contingent Commissions. Positive means reporting company expects to pay
contingent commissions to ceding company.
Col 10: Assumed premiums receivable – net of regular commissions (which don’t
appear in Col 9 either).
Col 11: UEP.

Feldblum (Sch F), "Reinsurance Accounting: Schedule F" – W
Funds Withheld and Letters of Credit
Unauthorized reinsurers cause ceding companies to post provision (unless secured).
Even if reinsurer is authorized and not slow-paying, ceding company may still request a
letter of credit.
Col 12: funds held by or deposited with reinsured companies. These are owned by the
reinsurer but held by ceding company.
Col 13: Letters of credit – a letter from financial institution securing recoverables. It
doesn’t affect reinsurer’s B/S, but it lowers the ceding company’s provision.
Col 14: Assets pledged to secure letters of credit – bank may request the reinsurer hold
a compensating balance to secure the letter of credit.
Part 2: Portfolio Reinsurance
Part 3: Ceded Reinsurance
Fronting Companies – column 5 lists totals of contracts ceding 75% or more of direct
premium. This business is not normal.
Fronting arrangements are used by insurers who want to write business in states where
they are not licensed. For example, ABC wants to write WC business in New York
where they’re not licensed. ABC arranges for XYZ to write the business and cede it to
ABC. In exchange, ABC provides a fronting fee to XYZ.
Some regulators don’t like this because they don’t have access to unauthorized
reinsurers, and distressed companies may not present a full and true statement.
Exceptions – to column 5:
Affiliated transactions: A, B, and C are affiliated companies. A and C cede 100% of
business to B, while B cedes 1/3 of all business to A and 1/3 to C. This is often used
when one company is used for preferred insureds, and another used for subprimes.
Pools: involuntary pools and JUAs
Small Amounts: less than 5% of P/H Surplus.
Captives: insurance companies part of larger companies.
Loss and LAE
Commissions
Illustration 1: Excess-of-Loss Reinsurance Treaty
Illustration 2: Surplus Share with Provisional Commission
Part 4: Aging of Ceded Reinsurance – Starting in 1989, there is a statutory penalty for 20% of loss
recoverables more than 90 days past due and 20% of all recoverables from slow-paying authorized
reinsurers; Also a payment schedule was added.
The Due Date
1. If the original contract specifies when recoverables are due, then that is the due date.
Example: loss occurs March 15. Loss paid by ceding company on Aug. 15. Ceding
company bills reinsurer on Sept. 15. Contract says recoverables due within 30 days of
time of notice. Thus due date = Oct. 15.
2. If a due date is not specified, but contract does specify a determination of a date at
which claims are presented to reinsurer, then that is the due date. Example: contract
says claims are presented to the reinsurer within 30 days of the date loss is paid by
ceding company, then due date = Sept. 15.

Feldblum (Sch F), "Reinsurance Accounting: Schedule F" – W
3. If due date nor presentation date not specified, and loss is >= $50k, then due date is
the date losses were paid. For example, if dates not available in above example, and
loss = $100k, then due date = Aug. 15.
4. If dates not available and loss is < $50k, then claims are to be considered current.
Note: Reinsurance intermediary or broker is same as reinsurance cos here.
The Aging Schedule – note the following columns in Part 4:
Reinsurance Recoverable on Paid Losses and LAE
5
Overdue
10 =
6
7
8
9
Sum(6,7,8,9)
30 to
91 to
Over
1 to 29
90
120
120
Total
Current Days
Days
Days
Days
Overdue
12
13
11
=
5+10
= 10/11
Total
Due
%-age
Overdue
= 9/11
%-age More
than 120 Days
Overdue
Column 13 isn’t used in statutory calculations.
The Statutory Provisions for Reinsurance
Provides penalties for:
unsecured recoverables from unauthorized reinsurers
unsecured recoverables from slow-paying (authorized) reinsurers
overdue recoverables from authorized & unauthorized reinsurers
recoverables in dispute from unauthorized & non-slow-paying authorized reinsurers.
Provision appears page 3, line 16 of AS.
Reinsurance recoverable on paid losses is an asset (page 2). Reinsurance recoverable on
unpaid losses offsets gross unpaid losses and LAE; and Ceded UEPR offset gross UEPR
(liabilities – page 3). Provision affects all 3 of these.
Provision doesn’t affect loss reserves (which are net) included in losses on page 3; or in the
Underwriting/Investment Exhibit, or in Sch P, where there is no distinction between
authorized/unauthorized reinsurers and slow-paying/non-slow-paying.
Provision must be >= uncollectible reinsurance.
The change in provision directly affects surplus, but doesn’t affect statutory income statement.
Reducing surplus also reduces RBC adjusted surplus and RBC ratio.
GAAP statements have no provision. GAAP also shows all reinsurance recoverables as assets,
and not liability-offsets. AM Best also removes provision when calculating adjusted leverage
ratios.
Note 22D. “Uncollectible Reinsurance” discloses uncollectible written off in four categories: (i)
losses incurred, (ii) LAE incurred, (iii) premiums earned, (iv) other. A company with writeoffs greater than provision may be underestimating liabilities.
Actuary must discuss collectibility on loss reserve adequacy in Statement of Actuarial Opinion.
Relationships
Prospective vs retrospective: Note 22 is a retro disclosure. Provision, GAAP offset for
expected uncollectible, and actuary’s disclosure in Opinion are prospective estimates.

Feldblum (Sch F), "Reinsurance Accounting: Schedule F" – W
Basis of Estimate: Note 22 is fact. Sch F Provision is formula-driven. GAAP financial
statements are management’s best estimate of future uncollectibility. Actuarial Opinion
is Actuary’s estimate of future uncollectibility, which can differ from management’s.
SAP-GAAP Accounting Philosophies
GAAP – going concern; satisfies investors; usually estimated by management, and audited by
an independent accountant.
Statutory Accounting – seeks to ensure insurance obligations; satisfies P/Hs; relies heavily on
conservative formulas; monitored by Regulators.
GAAP
Statutory Accounting
Audience Served
Investors
P/Hs
Focus (Topic)
Future profitability
Current obligations
Focus (AS)
Income statement
B/S
Nature of Estimate
Unbiased
Conservative
Basis of Estimate
Company management
Statutory formula
Users
Sophisticated
Unsophisticated
Companies Targeted Going concern companies Distressed companies
Decision Tree
1. If reinsurer is not authorized, provision for reinsurance = 100% of unsecured total
recoverables + 20% of loss recoverables >90 days + 20% of amts in dispute. Security
has no effect on the last two items. Provision is capped by total recoverables.
2. If reinsurer is authorized AND is slow-paying, then provision = greater of (i) 20% of
unsecured total recoverables (including disputed amts) and (ii) 20% of loss recoverables
>90 days. No capping is needed.
3. If reinsurer is authorized AND is non-slow-paying, then provision = 20% of loss
recoverables >90 days + 20% of amts in dispute >90 days.
Part 5: Unauthorized Reinsurers
History:
Before 1989, provision only applied to unsecured recoverables from unauthorized
companies.
In 1991, a provision for overdue recoverables from authorized reinsurers was added.
Security reduces the provision for total recoverables from unauthorized, but not for
overdue recoverables from authorized. If all recoverables are secured, then authorized
felt this was too harsh. So the provision for overdue recoverables from unauthorized
companies was applied as well.
Recoverables in dispute are not overdue, so a ceding company could avoid penalties by
classifying some overdues as “in dispute”. So in 1993, a provision for disputes was
added.
Penalty for Unsecured Recoverables
Column 5: total recoverables = net UEP, loss recoverables, commissions (Part 3 Col 15)
Columns 6-10 are funds securing recoverables: funds held by company (6), letters of
credit (7), ceded balances payable (8), miscellaneous balances (9), other allowed offset
items (10).
Column 12 = Col 5 – sum(6-10), but must be >=0.

Feldblum (Sch F), "Reinsurance Accounting: Schedule F" – W
A letter of credit in statutory accounting must be evergreen (must renew as long as
recoverables are outstanding) in order to offset provision.
Overdue Recoverables – Columns 13-14. 20% recorded regardless of security. Capped at the
securing funds (6-10).
Amounts in Dispute – Column 16; included in total recoverables (5) and excluded from
overdue recoverables (13). Dispute = litigation, arbitration, notification (formal written
communication denying validity of coverage). Capped by securing funds (6-10).
Illustrations
Part 6: Overdue Authorized Reinsurance
Column 7 shows slow-paying test = (loss recoverables >90 days) / (all recoverables on
losses&LAE + amts received in last 90 days of statement year); if the ratio >= 20% then
reinsurer is slow-paying.
For these companies: provision = 20% (loss recoverables >90 days + Disputed amts). (Note
that disputed amounts are excluded from >90.)
Incentives – the amts received in last 90 days was added to the denominator to avoid
discouraging claim settlements at the end of the year.
Part 7: Slow-Paying Authorized Reinsurers – how do we know these are slow-paying?
Provision is greater of 20% of unsecured total recoverables and 20% of overdue recoverables.
Amounts in dispute aren’t considered (they are included – not excluded).
The Provision for Reinsurance – calculation is done in the footnotes of Part 7.
Other Estimates – company should hold greater of the provision and the estimated
uncollectible recoverables;
Residual Markets – all recoverables from mandatory pools should be reported as current.
Part 8: Restatement of Balance Sheet – added in 1992 (comparable to SFAS 113)
Liabilities on Pg 3 are net of reinsurance. Before 1992 GAAP offset ceded reserves against
direct reserves (SFAS 60). Now separate entries for direct reserves and reinsurance
recoverables are required unless a legal right of offset exists.
Part 8 restates the B/S to be gross of reinsurance.
Illustration A
First Year: Policy issued 12/31/2001 with $10K premium. 40% quota share. UEPR =
$10K gross and $6K net.
Second Year: A $5K loss on 10/1/2002. Premium fully earned. UEPR = 0. Loss is
unpaid at end of year. Loss reserve = $5K gross and $3K net.
Third Year: Loss is paid, but not reimbursed by Reinsurer yet. Loss reserve = 0. The
$2K recoverable is moved from a contra-liability to an asset (reinsurance recoverable on
paid losses), even though there is no cash transaction.
Fourth Year: Reinsurer pays recoverable. The asset is replaced with cash, with no
effect on the income statement.
Part 8 states helps to identify the net credit for reinsurance.
Illustration B – Company pays $10M for quota share. Reinsurer pays $2M with recoverables
of $1.5M on paid and $4.5M on unpaid. Surplus = $20M. Surplus was reduced $2M. Part 8
shows how much of surplus consists of recoverables ($6M).
Illustration C – If reinsurer unauthorized with no security, provision = $6M. Surplus = $14M.
Illustration D – If reinsurer provides $3.5M letter of credit, provision = $2.5M. Surplus =
$17.5M. Of that, $3.5M arises from recoverables (Part 8).

Feldblum (Sch F), "Reinsurance Accounting: Schedule F" – W
Illustration E – If the security is funds withheld instead of letter of credit, provision = $2.5M.
Surplus = $17.5M. The fund withheld is either an offset to reinsurance recoverable or to the
cash held by ceding company owned by reinsurers.
Part 8 doesn’t include cessions to involuntary pools/JUAs.
Restatement of Balance Sheet to Identify Net Credit for Reinsurance- entries are as
follows:
Assets: 1. Cash & invested assets; 2. Agents’ balances or uncollected premiums;
3. Funds held by/deposited w/ reinsured companies; 4. Reins recoverables on loss &
LAE payments; 5. Other assets; 6. Net amt recoverable from reinsurers; 7. Totals.
Liabilities: 8. Losses & LAE; 9. Taxes, expenses, other obligations; 10. UEPs;
11. Advance premiums; 12. Dividends declared & unpaid; 13. Ceded premiums payable
(net of commissions); 14. Funds held by company under reinsurance treaties; 15. Amts
withheld/retained by company for account of others; 16. Provision for reinsurance;
17. Other Liabilities; 18. Total Liabilities excluding Protected Cell; 19. Protected Cell
liabilities; 20. Total Liabilities; 21. P/H Surplus; 22. Totals.
Restatement of Liabilities – Col 1 = net; Col 2 = needed adjustment; Col 3 = restated gross.
Two types of adjustments:
All reinsurance recoverables grouped as Line 6.
Provision for reinsurance and funds held by company are offsets to Line 6.
Line 8: Illustration A @ 2002: $3K net, $5 gross.
Line 10: Ill. A @ 2001: $6K net, $10K gross. Line 11 would be similar with all
advance premiums fully unearned before policy eff date.
Line 13: a summary of Reinsurance Premiums
Ceded UEPs
Ceded advance
premiums
Reins. premiums
payable
Payment
status
Already
paid
Already
paid
Who holds
cash
Who owns
funds
Liability vs.
contra-liab
Sign of
adjustment
reinsurer
Ceding co.
Contra-liab
positive
reinsurer
Ceding co.
Contra-liab
positive
Not yet paid
Ceding co.
reinsurer
liability
negative
Line 14 & 16 are liabilities. When reinsurance recoverables are grouped together, these
liabilities become offsets to that asset. Line 14 is a liability in SAP and GAAP, while
Line 16 only effects SAP.
Line 15 are not related to reinsurance (unpaid FICA tax, uncashed checks to claimants)
Line 17 could include P/H dividends declared and unpaid if the reinsurer contributes
part of the dividend.
Line 19 relates to securitization of insurance liabilities (an alternative to reinsurance).
Line 21 (Note: doesn’t match 2003 AS): P/H Surplus cannot change. Line 6 (in assets)
is the balancing item.
Restatement of Assets
Line 4: Is fully offset in Col 2, leaving 0 in Col. 3. This transfers to Line 6.
Line 3: These funds are owned by reporting company, but held by reinsurers. This
relates to assumed reinsurance. Reporting company will show 0 in Col 2.

Feldblum (Sch F), "Reinsurance Accounting: Schedule F" – W
Line 2: Left over from earlier AS’s. Note that in 2003, this line is replaced. Before
2001, agents’ balances were net or reinsurance premiums payable.
Line 1 & 5: Used by some companies; others show 0s in Col 2.
Line 6: Balances so that total assets = total liabilities & surplus.
I. Illustrations: Restatement of Balance Sheet – Company has recoverables $160M on paid/unpaid,
and $20M on UEPR. What are the adjustments?
Assets
Lines 1, 2, 3, 5: No adjustment.
Line 4: Zeroed out completely. (-$40M in this case).
Lines 6 & 7 determined later.
Liabilities
Line 8: Total recoverables on paid/unpaid are $160M. Recoverables on paid = $40M
(from Line 4). Recoverables on unpaid = $120M. Adjustment = $120M.
Lines 9, 11, 12, 15, 17: No adjustment
Line 10: Adjustment = ceded UEPR = $20M.
Line 13: ?? Ceded reinsurance premiums payable are fully offset: (-$5M in this case).
Line 14: Fully offset: (-$20M in this case).
Line 16: Fully offset: (-$15M in this case).
Line 18: Total = +$100M (Note: This is inconsistent with Line #s above, but consistent
with the 2003 AS – sloppy!!)
Line 19: P/H Surplus remains same ($110M)
Balancing Items
Total Asset adjustment (Line 7) must be $100M, so Line 6 = $140M.
II. Illustration: Provision for Unauthorized Reinsurance
III. Overdue Reinsurance
Aging Schedule
IV. Slow-Paying Reinsurers
V. Provision for Reinsurance by Type of Reinsurer
Schedule F: Objectives and Evaluation
Accounting Philosophies
Supplement vs Replacement
Unintended Consequences
Accuracy
Indicators of Uncollectibility
The Reach of Regulation
Prospective vs Retrospective Risks
Conclusion
Appendix A: Federal Income Taxes
Appendix B: RBC Requirements

Feldblum (Notes), "Notes to the Financial Statement," – W
 Feldblum (Notes), "Notes to the Financial Statement," – W
Discounting of Liabilities for Unpaid Losses and Unpaid Loss Adjustment Expenses (32)
Instructions – State whether any liabilities for unpaid losses or LAE are discounted. If so,
then also respond to Sch P Interg. 4, and columns 32 and 33 of Part 1 in Sch P.
a) if tabular basis used: Identify table used, rates used to discount, the amt of discounted
liability in statements, and the amt of tabular discount by LOB and reserve category
(case and IBNR).
b) if non-tabular basis used: Identify rates used to discount and the basis for rates used,
amt of non-tabular discount disclosed by LOB and reserve category (case, IBNR,
ALAE, ULAE), amt of non-tabular discount in statement.
c) if rates used to discount prior AY liabilities have changed from prior statement, or if
there are changes in key discount assumptions (like payout patterns): Identify amt of
discounted current liabilities at current rate (excluding current AY), amt of discounted
current liabilities at previous rates (excluding current AY), change in discounted
liability due to change in rates, amt of non-tabular discount by LOB and reserve
category.
Reserve Valuation
Tabular discounts are allowed on WC Indemnity and on long term disability claims
written on A&H policies. They are not allowed on medical payments and LAE.
Reserve discounts allowed for some monoline med mal.
Reserve discounts may be allowed by state insurance commissioner.
Tabular Discounts and IBNR Claims – it is allowed on both case and IBNR.
Dynamic Discount Rates
Risk-Based Capital
GAAP
Disclosure
Sch P: Columns 32 and 33 of Part 1.
Statement of Actuarial Opinion: Actuary comments on how loss reserve discounts may
affect reserve adequacy.
Notes to the Financial Statements: See Instructions above.
Changes in Discount Rates
Change in Estimate
Intercompany Pooling Arrangements (26)
Instructions – if company is part of a group of affiliated companies participating in an
intercompany pool, the following should be disclosed:
1) ID of lead company and of all affiliated companies and their respective pool %-ages.
2) Description of the lines and types of business subject to pooling agreement.
3) Description of cessions to non-affiliated reinsurers, and whether these cessions were
prior to or after the cession of pooled business from the affiliated pooled members to
the lead company.
4) ID of all pool members that are parties to non-affiliated reinsurance agreements that
have a right of direct recovery from non-affiliated reinsurer.
5) Explanation of discrepancies between entities regarding pooled business on
reinsurance schedules of lead company and corresponding entries on schedules of pool
participants.

Feldblum (Notes), "Notes to the Financial Statement," – W
6) Description of intercompany sharing of the Provision for Reinsurance and the writeoff of uncollectible reinsurance, if other than pool participation %-age.
Intercompany Pooling
Different reasons for intercompany pooling arrangements:
- a parent company may retain management and structure of an acquired
company (especially foreign subsidiaries).
- an acquired company may have a different distribution system or book of
business.
- if a primary company acquires a reinsurer, they may wish to keep arms-length
transactions, especially if reinsurer assume competitors’ business.
- an affiliate may be designated to handle run-off business.
- an insurer may gain regulatory/tax benefits from a company being in a
different domicile (Bermuda).
- an insurer may avoid onerous state regulation by designating one company to
focus on one state’s business.
- an insurer may have a multi-tiered rating structure, where each company
handles certain different levels of risk (RSA did this).
One management team may run all companies, where each entity cedes its business to
the lead company, which then retrocedes a %-age to each legal entity.
The pooling agreement covers premiums, losses, LAE. U/W expenses allocated
according to state regulation. Assets, investment income, surplus are not affected.
Cessions and assumptions from unaffiliated companies depends on whether or not they
are classified as pool business.
Pooled business is treated differently in Sch P than elsewhere, like Sch F. This Note
helps to reconcile the differences. (In Sch P, history must be restated as if the current
pooling was always in effect.)
High Deductibles – (31) – disclose the amt of reserve credit that has been recorded for high
deductibles on unpaid claims and the amts that have been billed and are recoverable.
Similar to retrospective rating
Insurer is liable for all claims, and is reimbursed by employer for losses below the
deductible. Reimbursement is similar to a retro premium.
Insurer assumes credit risk that employer won’t pay reimbursement (as in retros).
In some states, reimbursement is treated like premium.
Similar to excess insurance with a (claims handling) service contract
Reserves on stat statements are net of expected reimbursements.
RBC capital WP risk charge is levied on actual premium.
In some states, the reimbursement is like service fees to a 3rd party administrator.
Non-admitted asset charge levied on reimbursements for losses already paid, but not for
reimbursements on unpaid losses.
Regulatory Concerns – 10% non-admitted charge for uncollected reimbursements offsets the
credit risk. The employer may not be able to pay an LDD assessment. Risk to employees is
that insurer may not be able to handle claims because employer didn’t pay reimbursements,
which is offset by stat rule that insurer is directly liable for WC claims.

Feldblum (Notes), "Notes to the Financial Statement," – W
Accounting for Unpaid Losses – these are net of expected reimbursements. (in retro rating,
the entire loss reserve is a liability and the retro premium is an asset.) GAAP shows loss
reserves gross of reinsurance recoverables and employer reimbursements.
Non-Admitted Assets
GAAP shows all receivables owed to the insurer. If a receivable is not receivable, it is
written off through the income statement.
Statutory accounting uses formulas to determine the non-admitted portion. If receivable
is already due but not yet received, it’s not admitted if more than 90 days past due. If
the receivable is not yet due, 10% of unsecured amount is not admitted (this is where
large $ deductible reimbursements fall). If the receivable is secured it’s fully admitted.
Paid Losses – these are net of reimbursements.
Illustration: Accounting for Paid Losses – insurer sells high deductible WC w/ deductible =
$500k on Jan 1. Claim on July 1 for benefits of $1K a week and expected disability of 1 yr.
Insurer pays benefits through end of year, and intends to bill employer each July 1 for PY’s
reimbursement. Employer hasn’t paid any reimbursement by Dec 31.
B/S: (net of expected reimbursements): case reserve, incurred & paid loss = 0. $26K is
credited from cash and debited to “reimbursements receivable under large dollar
deductible policies”. 10% is non-admitted, so admitted = $23.4K.
Income Statement: Future pmts are $26K, but should be fully reimbursed. Net reserve
= incurred losses = 0. Cash flow shows $26K reduction in cash, and surplus decreases
by $2.6K (non-admitted).
Deferred Tax Asset: Income is $2.6K lower than the actual taxable income, and the
difference will reverse over the coming year, so the stat deferred tax asset = $910.
(which is 35% of 2.6K.)
Illustration: Accounting for Loss Reserves and Reimbursements – insurer sells WC policy
with $500K deductible on 7/1/2004. By 12/31, it has paid $350K in reimbursable benefits, and
it has received $225K. It expects to pay $2.5M more in benefits, of which $2.2M is
reimbursable. $300K is for expected payments above the deductible.
Stat B/S shows loss reserves = $300K.
GAAP shows $2.5M loss reserves and $2.2M expected reimbursements. Paid losses on
cash flow are 0, and so are incurred losses. B/S entries are a net credit of $125K, of
which $12.5k is non-admitted.
Incidence of Loss
Illustration: Accounting for Unidentified Losses
Illustration: Accounting for Aggregate Deductibles
Disclosures
Note: Asbestos and Pollution (33) – these exposures are large, and it’s unclear who is liable for the
damages or how one can estimate them.
SSAP 65 states that the following should be disclosed:
a) reserving method for case and IBNR reserves;
b) amt paid and reserved for losses & LAE on gross and net basis;
c) description of LOBs where there is potential environmental exposure, and the nature
of the exposures;

Feldblum (Notes), "Notes to the Financial Statement," – W
d) the following for the five most current CYs gross and net, separately for asbestos and
environmental losses: Beginning reserves, incurred losses and LAE, CY payments for
losses & LAE, Ending reserves.
Reserving methods
Reinsurance Assumed and Ceded (23C)
Instructions
1. Report max amt of return commission which would be due if they cancelled all
reinsurance or if a receiver cancelled all of your assumed reinsurance….
2. Report additional commission based on loss experience or profit sharing arrangement
as a result of existing contractual arrangements
Reinsurance Commissions
Reinsurance has 2 functions: risk transfer and capital management (freeing capital
embedded in loss or UPR). This note looks for possibilities of abuse of using
commissions for surplus relief.
Surplus relief can be misleading in two ways:
If ceding company faces distress, reinsurer may not renew treaty, restoring the
high premium-to-surplus ratio.
A company may obtain an artificial relief by paying a higher reinsurance rate
with a higher commission.
Commission equity = UEPR * the reinsurance commission rate.
The Note:
Assumed Reinsurance
Premium Commission
Reserve
Equity
(1)
(2)
Ceded Reinsurance
Premium Commission
Reserve
Equity
(3)
(4)
Net
Premium Commission
Reserve
Equity
(5)
(6)
i. Affiliates
ii. All Other
iii. Total
iv. Direct UEPR
Illustration 1: Excess-of-Loss Reinsurance Treaty
Contingent Commissions
Part 2 of the Note:
Reinsurance
Direct Assumed Ceded Net
i. Contingent Commission
ii. Sliding Scale Adjustments
iii. Other Profit Commissions
iv. Total
Illustration 2: Surplus Share with Provisional Commission
Quota-share insurance is usually priced with a ceding commission, which
becomes the effective reinsurance rate.

Feldblum (Notes), "Notes to the Financial Statement," – W
The treaty could use a contingent commission with high provisional rate to
provide surplus relief.
Retroactive Reinsurance (23F)
Instructions
1. Provide info for retro reinsurance for losses already occurred: reserves transferred,
consideration paid or received, paid losses reimbursed/recovered, special surplus from
retro reinsurance, list of cedents/reinsurers included.
2. Disclose all contracts covering losses occurring prior to inception of contract not
accounted for based on SSAP 62.
Prospective vs. Retroactive Reinsurance
Retroactive reinsurance can include reinsuring unpaid losses.
Before 1992, outside of NY, most states treated retro reinsurance as ordinary. NY
argued that companies used “loss portfolio transfers” to replace full value reserves with
present values. Or reinsurer assumed no U/W risk.
In 1992, NAIC adopted NY’s rules. Gain from retro reinsurance is set aside as special
surplus and transferred to unassigned surplus after losses are paid. As a result, retro
reinsurance cannot offset the reserves anymore.
To get surplus relief from an undiscounted reserve, cede the reserves to a reinsurer at a
discounted price (close to PV). Ceding company gets the difference in surplus relief
and the reinsurer gets a profit.
Accounting Procedures
If reinsurance doesn’t satisfy FAS 113, then accounting entries are a reduction (credit)
to cash and a debit to “deposit with reinsurance company.” No surplus relief.
On GAAP, if reinsurance satisfies FAS 113, then recoverables are assets. Gains
recognized over policy term for prospective and over lifetime of claims for retros.
Stat Accounting: surplus relief is immediate, and additional surplus = “special surplus”.

Feldblum (Notes), "Notes to the Financial Statement," – W
Disclosure Requirements – aggregate of all retro insurance are reported in this format:
(1)
(2)
Assumed Ceded
A. Reserves Transferred:
1. Initial Reserves
2. Adjustments – Prior Year(s)
3. Adjustments – Current Year
4. Total
B. Consideration Paid or Received:
1. Initial
2. Adjustments – Prior Year(s)
3. Adjustments – Current Year
4. Total
C. Amounts Recovered/Paid (cumulative):
1. Prior Year(s)
2. Current Year
3. Total
D. Special Surplus from Retroactive Reinsurance:
1. Initial
2. Adjustments – Prior Year(s)
3. Adjustments – Current Year
4. Closing Balance
Additionally, retroactive insurance must be discussed by Actuary in the Opinion.
Uncollectible Reinsurance (23D)
Instructions – Describe uncollectible re written off including: losses incurred, LAE incurred,
premiums earned, other.
Four disclosures:
GAAP statements: management’s prospective estimate – a non-ledger bad debt offset.
Provision for reinsurance must be at least as large as uncollectible re.
Appointed Actuary comments on it in Actuarial Opinion
The Notes: uncollectible re written off – a retrospective disclosure.
In most cases, the provision for reinsurance will be larger than uncollectible re because:
Provision includes uncollectibles for all years, while the Note only reports one year.
Provision should be at least as large as estimated uncollectible re. (Okay.)
Structured Settlements (27)
Annual Statement Instructions
A. Disclose amt of reserves no longer carried by insurer because it has purchased
annuities w/ claimant as the payee (one to whom money is paid) and the amt insurer is
liable for if the annuities fail to perform.
B. Disclose names and location of ins co and aggregate statement value of annuities due
from any life insurer where the aggregate value => 1% of P/H Surplus. Include only

Feldblum (Notes), "Notes to the Financial Statement," – W
annuities where the company has not obtained release of liability from claimant. Also
disclose if life insurers are licensed in the company’s state.
Background – structured settlement is where one party (P&C) makes periodic payments (life
annuity) to a 2nd party (accident victim) as compensation for damages incurred. Usually
decided out-of-court.
Structured Settlements and Retroactive Reinsurance
Some insurers (usually WC carriers) will make the payments themselves, and the
reserves they carry may be undiscounted or tabular discounted.
Insurer may purchase a life annuity to make payments. The life insurance company will
then use a discounted annuity reserve.
Casualty insurer may purchase an annuity from its own life insurance subsidiary.
Funding the settlement w/ an annuity is like retroactively reinsuring w/ a life insurance
company. Stat accounting doesn’t allow a reduction in reserves for retroactive
reinsurance, but this is not true for structured settlements. Rather, these settlements are
seen to benefit the injured parties, so it’s not counted against the ceding company.
Rationale for Structured Settlements
Matching: Plaintiffs are entitled to lump sum payments, but jurors may disagree on the
life expectancy of plaintiff or the discount rate to use. A structured settlement allows
jurors to match compensation to damages suffered.
Management of Assets: Lump sums can be squandered. Victims may be susceptible to
fraudulent investment schemes. Structured settlements may be better.
Minors: If injured is minor or incompetent, courts will probably suggest a structured
settlement.
Taxes: Money received in compensation for damages isn’t taxable. However,
investment income on a lump sum is. If lump sum is awarded first and then exchanged
for a structured settlement, it will be taxed.
Statutory Accounting Treatment – four parties to consider in an annuity:
The owner buys the annuity, who can then transfer ownership to someone else for
compensation or as a gift.
The annuity writer is usually a life insurance company.
The measuring life determines the duration of benefits. ???
The payee receives the annuity payments.
GAAP and Statutory Accounting
Disclosures – this is necessary when the claimant is the payee and the insurer has not obtained
a release of liability.
Commutation of Ceded Reinsurance (23E)
Instructions – describe commutations of ceded reinsurance during year by the following
classes, including name of reinsurers: Losses incurred, LAE incurred, Premiums earned, other.
Motivations for Commutations
Reinsurance Recoverable in Dispute (23B)
Instructions – Reinsurance recoverable on paid/unpaid (with IBNR) losses in dispute by
notification (formal letter denying coverage), arbitration, litigation shall be identified if
disputed amts for a reinsurer >= 5% P/H Surplus or if aggregate of all disputed items >= 10%.

Feldblum (Notes), "Notes to the Financial Statement," – W
Amounts in Dispute and Overdue Recoverables – Amounts in dispute do not enter the
payment schedule in Part 4. (What?)
Disclosure Requirements
 Feldblum (Surplus), "Statutory Surplus: Computation, Pricing and Valuation," – W
Balance Sheets and Income Statements
B/S: surplus = assets – liabilities.
I/S: surplus = last year’s surplus + current year’s income.
Example: Insurer begins year with $2000 surplus and $2000 cash. One policy for $1000
premium on Jan. 1. Incurs expenses of $250 and losses of $600 during year.
Statutory acct on accrual basis, not cash basis. $200 paid by Dec 31, $400 in reserves. Then
cash increases by + 1000 – 250 – 200 = + 550. Total cash = $2,550. Liabilities (0 at
beginning) are $400 at end. Surplus = 2550 – 400 = $2,150.
Net income = 1000 – 600 – 250 = $150 (the addition to surplus).
In the following examples: Nonadmitted assets & statutory liabilities affect the B/S , but not the
I/S, which is not affected.
Non-Admitted Assets – in this example, $100 of premium is uncollected and >90 days due.
No change to the I/S. Before adjustments, surplus = $2,150.
In B/S, the non-admitted portion is reported in Col. 2 of Pg 2. Cash on hand = 2000 + 900 –
250 – 200 = $2,450. Surplus = $2,450 – $400 = $2,050. (Different from I/S.)
The Asset Exhibit – Exhibit 1 on Pg 13 reconciles I/S surplus with B/S surplus.
The Statutory Balance Sheet
4 columns on the B/S Assets page (Pg 2): 1) Assets; 2) Nonadmitted assets; 3) Net Admitted
Assets; 4) Prior Year Net Admitted Assets.
3 columns on Exhibit 1 (Pg 13): 1) non-admitted assets at beginning; 2) non-admitted assets at
end; 3) Change for year (col 2 minus col 1 – note this is backwards).
Surplus Adjustments
Exhibit 1 column 3 increases/decreases surplus on Pg 4 (line 26).
Non-admitted assets in Exh 1 include regular N/A assets on B/S plus: bills receivable – past
due – taken for premium; furniture & equipment; loans on personal security. Exhibit 1 does
not include: non-admitted portions of assets lines 1-9; excess of book over market values (the
change of which is unrealized capital gain/loss).
Office Furniture
Two methods for accounting for non-admitted assets:
1: Write off non-admitted asset as an expense on I/S.
2: Use GAAP entries for B/S and I/S, but classify asset as non-admitted with direct
charge to surplus.
Example: insurer buys office furniture with useful life of 10-yrs for $100K.
GAAP entries are: Credit cash by $100K; debit office furniture asset by $100K. No change in
GAAP equity. (All ledger entries.)
On Stat financial statements – Method 1 has: credit cash by $100K, debit general expenses (I/S)
by $100K. Stat surplus declines by $100K.

Feldblum (Sch F), "Reinsurance Accounting: Schedule F" – W
Method 2 has: Credit cash by $100K; debit furniture by $100K as non-admitted; change in nonadmitted assets is a charge to surplus.
Year 2 GAAP non-ledger entries have: credit office furniture by $10K, debit depreciation
expense by $10K.
Stat – Method 1: no more accounting transactions.
Stat – Method 2: credit office furniture asset by $10 (non-admitted) and debit depreciation
expense by $10K. -$10 change in non-admitted assets will increase surplus.
Accrued Retrospective Premiums
Statutory Liabilities: Provision for Reinsurance
Unrealized Capital Gains
Audit Premiums
Deferred Policy Acquisition Cost and Premium Deficiency Reserve
Interest Due and Accrued
Real Estate
Stockholder Dividends and Capital Contributions
Statutory Surplus, GAAP Equity, and Capital Invested
In other industries, ROE is a proxy for the return on invested capital. For P&C insurance,
GAAP equity <> invested capital. Invested capital = statutory surplus + capital embedded in
gross UEPR and full value loss reserves.
Double Taxation
Valuation: Cost of Holding Capital:
 IASA 1, Chapter 2. Assets – L
Admitted Assets
Bonds – valued at amortized or the lesser of amortized and market (for low quality bonds).
Stocks – explained below
Mortgage Loans on Real Estate
Real Estate – real estate owned by and more than 50% occupied is considered property. less
than 50% occupied real estate is counted as property held for production of income or held for
sale.
Admitted Asset (properties occupied and held for production of income) = net book
value (depreciated cost) minus related encumbrances.
Admitted Asset (properties held to sell) = lower of (net book value or fair value) minus
related encumbrances and estimated costs to sell the property.
Cash and Short-Term Investments
Cash includes savings accounts, CDs w/ maturity dates 1 year or less from acquisition
date, cash equivalents such as short-term, high liquid investments.
Short-Term Investments includes bonds w/ remaining maturities of 1 yr or less at time
of acquisition, commercial paper, MM instruments, repurchase agreements. Reported
in Schedule DA.
Other Invested Assets
Receivable for Securities
Agents’ Balances or Uncollected Premiums – nonadmitted assets include uncollected
premium over 90 days past due; uncollected ABs on policy by policy basis that exceed 90 days

IASA 1, Chapter 2. Assets – L
past due; and amt over 90 days due plus future installments for installment premiums over 90
days past due.
If the reporting company is a direct writer, then premium balances include full amt due.
If company uses an agent but bills P/Hs directly, the company may net out the
commissions paid.
If company writes through agents who collect premiums, the premium is usually
recorded net of commissions.
Funds Held By or Deposited With Reinsured Companies
Bills Receivable Taken for Premiums
Amounts Billed and Receivable Under Deductible and Service Only Plans
Reinsurance Recoverable on Loss and LAE Payments
Federal and Foreign Income Tax Recoverable and Interest Thereon
Guaranty Funds Receivable or on Deposit – this refers to amts on deposit for receivables due
from state guaranty funds and premium tax credits or P/H surcharges, etc.
Electronic Data Processing Equipment and Software – capitalized and depreciated. Only
other SAP asset to be treated this way is real estate. This is required to avoid fluctuating
expense levels due to relatively high cost and irregularity of purchases. Operating system
software counts as admitted since it creates the environment in which workers can work.
(Individual application are not admitted.) EDP is also very quickly obsolete – further
necessitating depreciation.
Interest, Dividends, and Real Estate Income Due and Accrued
Real Estate (Schedule A)
Mortgages (Schedule B) and Other Invested Assets (Schedule BA)
Bonds (Schedule D)
Stocks (Schedule D)
Interest on Bank Balances (Schedule E)
Net Adjustments in Assets and Liabilities due to Foreign Exchange Rates
Receivable from Parent, Subsidiaries, and Affiliates
Amount Due from/to Protected Cells
Equities and Deposits in Pools and Associations
Amounts Receivable Relating to Uninsured Accident and Health Plans
Details of Write-Ins
Nonadmitted Assets
Bills Receivable Not Taken for Premiums
Furniture, Equipment, and Supplies – these are nonadmitted assets to be valued at the
undepreciated amt after being capitalized and depreciated. SAP requires reporting the total cost
of asset in year of acquisition and a portion of the cost as expense each year. Over the life of
the asset, the entire cost will have been recorded as depreciation expense. Supplies such as
pencils, stationery, paper are simply expensed and not counted as admitted assets.
Leasehold Improvements
Loans on Personal Security, Endorsed or Not
Loans on Company’s Stock
Aggregate Write-Ins for Other Than Invested Assets – includes: autos, airplanes, other
vehicles; cash advanced to or in hands of officers/agents; travel advances; trade names & other
intangible assets; deposits in suspended depositories; “non-bankable” checks.
Summary

IASA 1, Chapter 2. Assets – L
 IASA 1, Chapter 5: Other Liabilities, Capital & Surplus – L
Other Liabilities – Found on AS Pg. 3.
Accounts Payable and Accrued Liabilities
Postretirement Benefits Other Than Pensions (SSAP No. 14)
These benefits are those (other than retirement income) provided by employer to
retirees, such as health care benefits, or life insurance benefits.
Insurers must account for these on an accrual basis. The liability = the estimate
actuarial PV of benefits. And is included in LAE (Ln 3) and Other Expense (Ln
5) based on the insurer’s allocation scheme.
Commissions Payable, Contingent Commissions and Other Similar Charges – Ln 4
Agents and General Agents
Reinsurance Commissions (as Reduction of Acquisition Expenses)
Straight Profit
Sliding Scale
Guaranteed Profit
Other Similar Charges – Ln 4.
Company Officers or Management
Other Expenses (Excluding Taxes, Licenses and Fees) – Ln 5.
Payable to Parent, Subsidiaries, and Affiliates – Ln 19.
Payable for Securities – Ln 20.
Details of Write-ins – related to Ln 23.
Banking Items
Borrowed Money $........ and Interest Thereon – Ln 8.
Debt Obligations of Employee Stock Ownership Plans (ESOP) – Ln ???
Drafts Outstanding – Ln 18.
Reserves for Uncashed Checks – some companies may include this in
Amts withheld/retained by company for account of others (Ln 14) or in Aggregate
Write-ins (Line 23)
Bank Overdrafts – recorded as a negative balance on Pg 2 Ln 5 (Cash).
Reinsurance Items (SSAP 62)
Funds Held by Company Under Reinsurance Treaties – Ln 13.
Provision For Reinsurance – Ln 16.
Ceded Reinsurance Premiums Payable (net of ceding commissions) – Ln 12.
Dividends Declared and Unpaid – Ln 11
Stockholders – dividends usually paid as cash. Liability exists for dividends
declared but not yet paid. Stock dividends are the capitalization of a portion of
unassigned funds, so they are not a liability to be included here.
Policyholders – paid as cash or as a credit against next premium. Undeclared
dividends are not to be included. If shown, undeclared dividends are a
segregation of surplus.
Miscellaneous Items
Amts Withheld or Retained by Company for Account of Others (SSAP 23) – Ln 14.
Two parts to this line: deductions from employees for taxes, premiums,
pensions, savings bonds, etc; and PH or claimant funds held by company.

IASA 1, Chapter 5: Other Liabilities, Capital & Surplus – L
Net Adjustments in Assets and Liabilities Due to Foreign Exchange Rates – Ln 17.
Liability for Amounts Held Under Uninsured A&H Plans (SSAP 47) – Ln 21.
Aggregate Write-ins for Liabilities
Capital And Surplus: A Company’s P/H’s Surplus
The Origin of P/H’s Surplus: Organizing an Insurer
Initial Financing of Insurers
Minimum Capital or Surplus – the min amt of P/H Surplus required depends
on the type of organization being formed (stock, mutual, reciprocal) and the
LOB to be written. Then state law stipulates the min.
Stock – financed through stock (common or preferred – Lines 28 & 29 on Pg 3).
If stock sold in excess of par, the excess is shown as contributed surplus (Ln 32).
Stockholders own the company through a BOD.
Mutual – organized and owned by P/Hs. No stock. Original net worth =
surplus paid in by original P/Hs + funds from any interest party. Even after
meeting original surplus requirements, they may be held to an ongoing surplus
requirement to stay in business.
Reciprocal
Ongoing Financial Requirements
Surplus for minimum ongoing requirements includes: paid-in/contributed
surplus (stock); guaranty fund surplus (mutual); subordinated surplus
debentures; certificates representing shares; deposit & escrow requirements;
fractional shares; liability of subscribers and shareholders for unpaid shares;
shareholders’ preemptive rights; organizational expenses & liability of
incorporation; treasury stock (reduction to surplus); unassigned funds.
Treasury Stock
Guaranty Fund Certificates
Capital or Surplus Impairment
The Capital and Surplus Account
Segregating and Replenishing Surplus
Special Surplus Funds
Subordinated Surplus Debentures (SSAP 41)
Capital Notes
Summary
 IASA 1, Chapter 8: Other Expenses – L
Expense Accounting
Classification of Expenses
NAIC Operating Expense Classifications
Management Expense Classifications
Expense Allocation
NAIC Reporting
Management Reporting
Direct and Indirect Expenses and Cost Pools
Corporate Expenses
Internal Accounting Controls
Expense Information System (EIS)

IASA 1, Chapter 8: Other Expenses – L
Standards for Authorization and Payment
Management Accountability
Responsibility Accounting
Benchmarking to Improve Performance
Budgeting
Variances Between the Plan and Results
Controllable vs. Noncontrollable Expenses
Flexible Budgets
Expense Reporting
National Association of Insurance Commissioners
The Annual Statement
The Insurance Expense Exhibit
Ratemaking
Management and External Reporting
Summary
 IASA 1, Chapter 9: Investment Income – L
Investment Instruments
Short-term Investment Instruments
Commercial Paper
Certificates of Deposit
Treasury Bills
Repurchase Agreements, Reverse Repurchase Agreements and Dollar Repurchase
Agreements
Repurchase Agreement = one which reporting entity buys securities and agrees to resell
the same securities at a stated price on a specific date (within 12 mths). The amt paid
for the securities is a short-term investment. The difference between amt paid and amt
sold is the interest income. The reporting entity should receive collateral having fair
value at least = 102% of purchase price paid.
Reverse repurchase agreement = one which a reporting entity sells securities and agrees
to repurchase them at a stated price on a specific date (within 12 mths). These are
collateralized borrowings. Proceeds from sale as a liability, and the difference between
selling and buying price are an interest expense. The reporting entity should receive
collateral at least = 95% of fair value of securities transferred.
Dollar (reverse) repurchase agreements involve debt instruments collateralized w/
GNMA, FHLMC, FNMA.
Money Market Mutual Funds
Assets and Investment Income Accounting
Long-Term Bonds – insurance company’s primary investment. In general, long-term bonds provide
higher yields than money markets, with less risk.
US Government Securities
US Government Agency and Government-Sponsored Agency Securities
Loan-Backed/Asset-Backed Securities
Structured Securities
Corporate Bonds
Municipal Bonds

IASA 1, Chapter 9: Investment Income – L
Bond Mutual Funds
Foreign and Eurodollar Bonds
Surplus Notes
Asset and Investment Income Accounting
Sales and Exchanges
Valuation – bonds at NAIC levels 3 through 6 must be valued at lower of amortized cost or
market. For all bonds, the amortized cost = the amt paid plus premium or minus discount
amortized to date (scientifically, not straight-line).
Equities
Common Stocks
Preferred Stocks
Warrants
Mutual Funds
Asset and Investment Income Accounting
Sales and Exchanges
Valuation
Normally, equities are evaluated at SVO value (usually market value).
Stocks from subsidiaries, controlled, or affiliated companies are valued either w/: 1)
Statutory Equity Method (value of stat equity in company’s financial statement adjusted
for unamortized goodwill); 2) Market Value Method.
Preferred stocks valued at cost, amortized cost, lower of the two and market value
depending on the SVO rating and sinking fund provisions. SVO ratings go from 1 to 6
(like bond ratings). They also rate “PSF” = preferred stock w/ mandatory sinking fund
or “P” = no sinking fund. PSF 1 and PSF 2 get cost or amortized cost. PSF 3-6 get
lowest of cost, amortized cost, and market value. P-1, P-2 get market value. P-3
through P-6 get lowest of cost or market.
Mortgages
Asset and Investment Income Accounting
Sales and Exchanges
Valuation
Real Estate – unique to the insurance industry, an insurance company that owns its office space is
required to pay rent to itself. This makes the cost visible on a basis comparable w/ the alternative of
renting.
Asset and Investment Income Accounting
Sales
Valuation
Derivatives
Options
Caps – an agreement obligating the seller to effect cash settlement to buyer if underlying
interest exceeds a predetermined level of performance (strike or cap rate price). Such an
agreement could protect a company from falling long-term bond values due to rising interest
rates.
Floors – an agreement obligating seller to pay cash to buyer if underlying interest does not
exceed a predetermined level of performance (strike or floor rate price). This could protect a
company from having to invest a large amount of cash at lower yields.
Collars

IASA 1, Chapter 9: Investment Income – L
Swaps
Forwards
Futures
Assets and Capital Gain Accounting
Other Investments
Partnerships, Leases, Mineral Rights, Equipment
Asset and Investment Income Accounting
Sales
Valuation
NAIC Model Investment Laws (MIL) – insurance companies can choose between 2 different
methods of analyzing investment holdings:
1) Defined Limits Version – defines guidelines for types and %-ages of invested assets that
insurers are permitted to own. Only 5% of admitted assets (AA) can be invested in a single
issuer. If SVO-3, then only 1% of AA. If SVO-4,5,6 then only .5% of AA. Exceptions:
securities backed in full by US govt (no limit) and securities backed in full by Canadian govt
(40% of AA). In aggregate, only 20% of AA invested in SVO 3-6; 10% of AA invested in
SVO 4-6; 5% of AA in SVO 5-6, and 1% of AA in SVO 6. etc.
2) Prudent Person Version – relies on insurer to use prudent judgments to determine types and
%-ages of assets acquired. Insurer can analyze their own experience based on how well
investments meet company’s investment guidelines and how it enhances P/H Surplus. Criteria
includes: historical rates of return by investment class; how well asset duration matches
liability duration.
Securities Lending
Investment Performance
Control Procedures
Summary
 IASA 1, Chapter 10: Other Income and Direct Charges and Credits to Surplus – L
Other Income – On Pg 4 in AS
Net Gain or Loss from Agents’ or Premium Balances Charged Off – Ln 12
Finance and Service Charges Not Included in Premiums – Ln 13
Aggregate Write-ins for Miscellaneous Income – Ln 14
Premiums for Life Insurance on Employees
Checks Canceled Because of Nonpresentation for Payment
Gain or Loss on Sale of Equipment
Retroactive Reinsurance
Gain or Loss on Foreign Exchange
Corporate Expense
Fines and Penalties of Regulatory Authorities
Miscellaneous Income or Expense
Dividends to Policyholders – Ln 17
Dividends = dividends paid to P/Hs (Ln 8 Pg 5) + dividends declared and unpaid (Ln
11.2 Pg 3) – amt accrued at beginning of year.
Federal and Foreign Income Taxes Incurred – Ln 19.
Gains and Losses in Surplus – bottom of Pg 4 in AS
Line 22: Net Income directly affects Surplus.

IASA 1, Chapter 10: Other Income and Direct Charges and Credits to Surplus – L
Net Unrealized Capital Gains or Losses – Line 23
With a few exceptions, stocks carried at market value, bonds at amortized cost,
mortgages at unpaid principal, and real estate at cost less depreciation.
Sources: Exhibit of Capital Gains (Losses), Sch. D
Unrealized Capital Gain = change in difference between cost of stocks and their
statement (market) value at beginning of year, and the cost and market difference at the
end of the year.
Bonds are usually carried at amortized cost for book and statement purposes. So,
usually the unrealized gain = 0. If not eligible for amortized cost, then a difference can
occur, affecting Unrealized Gains/Losses.
Change in Net Unrealized Foreign Exchange Capital Gains (Losses) – Line 24
Differences in exchange rates can cause a change in net assets. Additional value from
revaluing these assets is an asset on Pg 2 (Line 19). Any reductions are a liability on
Pg 3 (Line 17). The change in this net gain/loss is charged to unassigned surplus on
Line 24 here.
Change in Net Deferred Income Tax – Line 25
Became effective in 2001.
Change in Nonadmitted Assets – Line 26
Change in Provision for Reinsurance – Line 27
Change in Surplus Notes – Line 28
Surplus Note = any subordinated indebtedness, surplus debenture, debenture note,
premium income note, bond, other used as a vehicle to increase surplus.
Surplus (Contributed to) Withdrawn from Protected Cells – Line 29
Protected cell – similar to a Separate Account. This cell is held by company and is used
to insulate proceeds of securities offering from the general business risks of the insurer,
granting additional comfort for investors.
Became effective 2002.
Cumulative Effect of Changes in Accounting Principles – Line 30
Became effective 2001 with “codification”. Previously reported in Line 36 (aggregate
write-ins).
This is the difference between amt of capital & surplus at beginning of year and amt of
capital & surplus that would have been reported if principle had been in effect for prior
years.
Anticipated Salvage and Subrogation – NAIC and state regulatory authorities now
permit anticipated S&S to be included in dev ult inc and unpaid losses. Previously,
reserves were gross of S&S.
Postretirement Benefits Other Than Pensions
Tabular Discounts – companies that used tabular discounts in the past, but are not now
defined as tabular discounts, the restatement of prior years will result in a reduction of
surplus.
Capital Changes – Line 31
These can be: Paid In (the par/stated value of shares issued (+) and retired (-));
Transferred from Surplus (Stock Dividend); Transferred to surplus (reduction in capital
when par value of stock reduced w/o offsetting reduction in # of shares O/S).

IASA 1, Chapter 10: Other Income and Direct Charges and Credits to Surplus – L
Surplus Adjustments – Line 32
Net Remittances from or (to) Home Office – Line 33
This is cash flow to a foreign home office.
Dividends to Stockholders – Line 34
These may only be funded from retained earnings (unassigned surplus).
Change in Treasury Stock – Line 35
Aggregate Write-ins for Gains and Losses in Surplus – Line 36
These can include: net proceeds from key-person life insurance on employees; unearned
compensation due to stock purchase plans; special surplus funds – contingency reserves,
catastrophe reserves, etc.; prior period adjustments.
Summary
 IASA 1, Chapter 14: Generally Accepted Accounting Principles – L
Sources of Accounting Principles
Differences Between SAP and GAAP
Assets – nonadmitted includes DPAC, furniture & equipment, uncollected premiums &
reinsurance recoverables over 90 days due.
Investments
Bonds – under GAAP are valued at amortized cost if company has the positive intent
and ability to hold the bonds until maturity and no decline in market value other than
temporary (“held-to-maturity”). If the company buys and sells bonds without intending
to hold them, they are valued at market value (“trading”). Other bonds are reported at
market value (“available-for-sale”).
Derivatives
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
Policy Acquisition Costs – commissions, premium taxes, and other U/W expenses.
SAP: All costs are incurred immediately.
GAAP: Some costs are deferred (capitalized and recognized) as an asset known as
deferred PAC (DPAC).
Accounting for the Impairment or Disposal of Long-Lived Assets
Reinsurance
FAS 113 review: reinsurance must meet the conditions: 9a) reinsurer assumes
significant insurance risk; 9b) it’s reasonably possible that reinsurer may realize a
significant loss.
This section basically summarizes a lot of FAS 113.
Unauthorized Reinsurance – SAP: liability established for amts receivable on paid & unpaid
losses and UEPs from unauthorized reinsurers. This liability is reduced by funds
held/securities. GAAP: no such liabilities except for amts deemed to be uncollectible.
Policyholder Dividends – SAP: dividends to P/Hs not recorded as liabilities until declared by
the BOD. GAAP: all undeclared P/H dividends are accrued at balance sheet date (estimating
amt to be paid).
Contingent Commissions – SAP: must use full accrual basis accounting for contingent
commission to agents. GAAP: contingent commissions are accrued over same period in which
the related U/W-ing results are recognized.
Loss and Loss Expense Reserves – SAP: estimates for all losses unpaid are recorded as
liabilities. Estimate are based on best estimate by LOB. The mid-point of the range is accrued.

IASA 1, Chapter 14: Generally Accepted Accounting Principles – L
Under GAAP, the lower end of the range would be recorded. SAP allows the discount of
reserves for certain lines with fixed and reasonably determinable payments (WC, A&H).
Under GAAP, these are usually non-discounted? (A little confusing wordings!)
Salvage and Subrogation – SAP: company may recognize S&S either upon receipt or by
accruing the estimated amt of S&S related to ult claim costs by reducing the related reserves.
GAAP: anticipated S&S recoveries valued at estimated realizable values and applied as a
reduction of claim liabilities at date of financial statements. Estimates of S&S recoverables are
assets.
Federal Income Taxes
Temporary Differences – tax law requires to discount loss & LAE reserves and to
recognize estimated S&S recoverables. Under SAP, discounting is only allowed for
certain reserves with fixed and determinable payments. Also, tax law requires 20% of
change in net UEP be included in taxable income. (These affect temporary items.)
Permanent Differences – tax law requires a provision of 85% of tax-exempt interest
income and dividends-received deduction (DRD) is exempt from taxation. (These will
not reverse in the future.)
GAAP vs SAP – GAAP allows for the deferral of certain taxes. SAP does not.
Pensions
Postretirement Benefits Other Than Pensions
Guaranty Fund Assessments
Foreign Exchange
Business Combinations and Accounting for Goodwill and Other Intangibles
Comprehensive Income
GAAP Disclosures of Public Companies
Earnings per Share
Segment Reporting
International Accounting Standard for Insurance
Summary
 IASA 1, Chapter 15: SEC Reporting Requirements – L
Three sources of reporting requirements: State govts, GAAP, and fed govt (SEC).
Federal Regulations and Statutes
Securities Act of 1933 – provides for the registration of securities to be offered or sold to the
public.
Form S-1 – when no other form is specified.
Form S-2 – for insurers that have filed periodic reports for at least 3 yrs but don’t meet
the voting stock requirements for S-3.
Form S-3 – for insurers that have filed periodic reports for at 1 yr and have at least
$75M of voting stock held by nonaffiliates.
Form S-4 – used to register shares offered in connection w/ business combinations.
Form S-8 – for insurer securities to be sold to employees/directors.
Form S-11 – used for registering securities of certain real estate entities.
Securities Exchange Act of 1934 – creation of the Securities and Exchange Commission
(SEC) as an independent agency of US govt.
Form 10-K – used to fulfill annual reporting requirements under the Act.

IASA 1, Chapter 15: SEC Reporting Requirements – L
Form 10-Q – filed w/ the SEC within 45 days after the end of each of the first three
quarters.
Form 8-K – a legal nature. It’s reported in narrative form and is required after any of:
change in control; major acquisition or disposition of assets; bankruptcy or receivership;
change of independent accountant; other events and Regulation FD disclosure;
resignation of directors; financial statements and exhibits (included if filed as part of the
report); change in fiscal year; Regulation FD disclosure.
In Aug 2000, Regulation FD requires new disclosure requirements for issuers meant to
promote timely communication of information to prospective investors.
Regulation S-B: Integrated Disclosure System for Small Business Issuers- Aug 1992:
simplified registration for certain qualified small business issuers.
Regulation S-X: Form and Content of Financial Statements – whoa!
Regulation S-K: Integrated Disclosure Rules – whoa!
Other SEC Reporting Issues
Staff Accounting Bulletin (SAB) Topic 5-N (SAB 62) – addresses two key issues. 1)
the permissibility of discounting claim liabilities; 2) whether a change from a stat
discount rate to an investment relate rate should be accounted for as a change in
accounting or as a change in estimate. SEC answered: 1) discounting is permitted at the
same rates company uses for reporting to authorities w/ respect to the same claims
liabilities; 2) it is a change in accounting.
SAB Topic 5-W – contingency disclosures: Specific uncertainties not normal and
recurring should be disclosed, while some normal uncertainties (amt & timing of
claims) do not need to be disclosed.
SAB Topic 5-Y (SAB 92) – disclosures related to product & environmental liability.
Legal definitions of liability and damage make estimating the potential ult exposure
difficult. SEC requires comprehensive disclosures indicating: the existence of
exposure, # of O/S claims, cost of settlements to date, accrued liabilities, availability of
reinsurance, status of major litigation.
Certification of Disclosure in Companies’ Quarterly & Annual Reports – Sarbox –
Principle officers must certify the financial info contained in the issuer’s statements.
Also, they must certify that: they are responsible for establishing, maintaining and
regularly evaluating the effectiveness of issuer’s internal controls; they have made
disclosures to the auditors and BOD about the internal controls; and they have included
info in the reports about their evaluation.
Electronic Data Gathering, Analysis, and Retrieval System (EDGAR) of the SEC
Stock Exchanges
Summary
 IASA 1, Chapter 18: Canadian Accounting – L
Evolution and Regulation of the Industry
Current Regulatory Developments
Accounting Standards
Actuarial Standards
The Canadian Annual Return
Main sections of the return: 10. General Information; 20. Financial Statements;

IASA 1, Chapter 18: Canadian Accounting – L
30. Statutory Compliance; 40. Investments; 50. Miscellaneous Assets and Liabilities;
60. Premiums, Claims and Adj Expenses – Total; 67. Provincial & Territorial Summaries;
70. Reinsurance Ceded; 80. Commissions and Expenses – Total; 90. Out of Canada Exhibits.
7 Notable differences from NAIC in list of lines.
1) Fire, allied lines, FO multi peril, HO multi peril, commercial multi peril, IM, EQ,
burglary and theft are combined into the property lines.
2) There is no WC which is conducted by provincial govts.
3) Med Mal is included with liability.
4) Auto no fault (BI, PD, direct compensation PD) is split out from “automobile,
liability” into “automobile, personal accident”. And “automobile, other” is PhyD.
5) Separate lines for mortgage and title insurance (usual written by specialty insurers).
6) “Marine” refers to OM as IM is included in property line.
7) Personal/Commercial automobile are not shown separately.
General Information
Financial Statements
Financial Instruments
Measurement Uncertainty
Balance Sheet – broken into 2 separate statements: “Statement of Assets” and
“Statement of Liabilities, Capital, Surplus & Reserves”.
Assets (Page 20.10)
Receivables (Lines 20-27)
Investments (Lines 4-10)
Other Assets (Lines 40-44)
Deferred Policy Acquisition Expenses (Line 43)
Liabilities (Page 20.20)
P/H Dividends and Rating Adjustments (Line 10)
Unearned Premium (Line 12)
Unpaid Claims and Adjustment Expenses (Line 13) – these cannot be
separated by line. Unlike NAIC, S&S is recorded as an asset instead of
as a deduction against unpaid claims.
Premium Deficiency (Line 15) – exists when the sum of [expected loss
costs on unearned exposure + expected policy maintenance costs of the
unexpired policies (including CAT reinsurance costs & agent’s
contingent profit sharing) + expected internal adjustment expenses
associated w/ expected loss] > than sum of [UEP + investment income to
be received on assets supporting UEP while unearned]. If the expected
costs + DPAC are greater than UEP + II, then DPAC is reduced to offset
the difference, and the remainder is premium deficiency.
Other Liabilities
Capital, Surplus and Reserves, (Page 20.20)
Reserves Required (Line 40)
Additional Policy Provisions

IASA 1, Chapter 18: Canadian Accounting – L
Income Statement (Page 20.30) – main source of confusion is how the change
in net DPAC is treated as an actual adjustment to commissions, taxes, and
general expenses.
Income
Expenses
General Expenses
Claims and Adjustment Expenses
Minimum Capitalization
Minimum Asset Test (Section 516 Test) – this test was used up to 12/31/02.
Take assets from 20.10, add in Excess of Market Value over Book
Value, and take out non-admitted assets, investment valuation reserve
and reserve for foreign exchange fluctuations, non-admitted portions of
investments in financial institutions, DPAC, recoverables from
reinsurers, excess basket clause investments, and other recoverables on
unpaid claims excluding SIR. This gives “(39) Assets available for test
purposes.”
Then take liabilities from 20.20, add in reserve for reinsurance ceded to
unregistered insurers, additional policy provisions, required margins
(more below), and take out recoverable from reinsurers, unearned
commission adjustment, and other recoverables on unpaid claims
excluding SIR. This gives “(69) Assets required for test purposes”.
“(89) Excess of assets available over assets required for test purposes” =
(39) – (69). And (90) is (89) as a % of (69). This is the ANSWER.
Margins are calculated on 30.11.
(09) Reinsurance ratio (excludes accident & sickness) = portion of
incurred in respect of reinsurance ceded during preceding 12 mths
divided by gross claims incurred during preceding 12 mths. This is
capped at 50%.
Margins: (a) Accident & Sickness Policies: (10) Margin on claims =
15% of net unpaid claims & LAE other than those in respect of
installment claims. (11) Margin on UEP = 15% of net UEP other than
those in respect of non-cancelable policies. (19) = (10) + (11).
(b) Policies other than (a):
(i) Unpaid Claims & UEP (Net): (20) Margin on claims = 15% of
unpaid claims and LAE. (21) Margin on UEP = 15% of UEP.
(22) Excess of “Required Coverage” over “Reserve” for
reinsurance ceded to unregistered insurers. (28) 15% margin on
self insured retentions. (29) = Total.
(ii) Premiums Written: (30) Basic margin = 15% of gross WP
during preceding 12 mths. (31) Supplementary margin on gross
premiums = min(5% of gross WP during preceding 12 mths,
$500K). (32) Gross Margin = (30) + (31). (33) Margin reduction
for reinsurance = Gross Margin * Reinsurance Ratio.
(39) Margin required for WP = (32) – (33).

IASA 1, Chapter 18: Canadian Accounting – L
(iii) Claims Incurred: (40) Basic margin = 22% of avg annual
gross claims incurred during preceding 36 mths.
(41) Supplementary margin = min(7% of avg annual gross claims
incurred during preceding 36 mths, $500K). (42) Gross margin =
(40) – (41). (43) Margin reduction for reinsurance = (42) *
Reinsurance Ratio. (49) Margin required for Claims Incurred =
(42) – (43).
The greater of these three margins is added to liabilities.
In 2003, this test is replaced by the MCT test.
Minimum Capital Test (discussed in MCT below)
Capital Available
Capital Required
Taxation
Types of Taxes
Taxes Based on Income
Insurers
Canadian Branches
Tax on an Insurer’s Investments
Tax on Insurer’s Capital
Other Taxes by Provinces
Premium Tax
Capital Tax
Sales Tax
Goods and Services Tax
Accounting for Income Taxes
Summary
 IASA 2, Appendix D Canadian Annual Return (Selected Exhibits) – L
Note: P&C-1 refers to the whole AR.
Summary of Selected Financial Data for Five Years (10.60) (years across 5 columns)
Operations
1) Assets
2) Liabilities
3) Reserves Required
4) Statutory capital and surplus = (1) – (2) – (3)
5) Gross WP
6) Net WP
7) Net EP
8) Gross claims incurred (excluding accident and sickness)
Profitability
Claims ratio
9) by year of account
10) by year of accident
11) Expense ratio
12) U/W-ing income
13) as a % of net EP

IASA 2, Appendix D Canadian Annual Return (Selected Exhibits) – L
14) Net investment income
15) as a % of net EP
16) Investment Yield
17) Net income (loss) for the year
18) ROE
Financial
19) Dividends to shareholders
20) Capital & surplus paid in during the year
21) Capital redeemed during the year
Other Ratios
22) Stat capital and surplus as a % of liabilities & reserves required
(4) / [(2) + (3)]
23) Gross risk ratio (5) / (4)
24) Net risk ratio (6) / (4)
25) Agents and brokers balances and amts due from subsidiaries and affiliates as a % of
stat capital and surplus
26) Claims development as a % of stat capital and surplus
Minimum Asset Test
27) Excess of assets available over assets required for test purposes ??
28) as a % of assets required for test purposes.
Assets (20.10)
Liabilities, Capital, Surplus and Reserves (20.20)
Minimum Asset Test (30.10 – 30.11) – covered in Chp. 18.
Reserves Required (30.15)
Deferred Policy Acquisition Expenses and Unearned Commission Adjustment (30.15)
Investment Valuation Reserve (30.20)
4 Columns:
(01) Book Values at Current Rates of Exchange
(02) Market Values at Current Rates of Exchange
(03) Market Excess = (02) – (01)
(04) Market Deficiency = (01) – (02)
Debt Securities
(01) Short term Bonds and Debentures; A = Excess
(02) Short term Mortgage Loans; D = Deficiency
(03) Long term Bonds and Debentures
(04) Long term Mortgage Loans
(09) Total Debt Securities: total of (01) through (04)
(10) Preferred and Common Shares; B = Excess; E = Deficiency
(11) Real Estate (Investment and Own Use)
(19) Total Debt Securities, Shares and Real Estate = (09) + (10) + (11); F = Deficiency.
(29) Total Long Term Bonds and Debentures, Long Term Mortgage Loans and Real Estate; G
= Deficiency
(39) Total Debt Securities and Real Estate; C = Excess

IASA 2, Appendix D Canadian Annual Return (Selected Exhibits) – L
(49) Total Long Term Bonds and Debentures, Long Term Mortgage Loans, Shares and Real
Estate; H = Deficiency
Debt Securities: (50) I = Net deficiency for reserves purposes for long term Debt Securities and
Real Estate = G – B if positive, else 0.
Shares:
(61) J = Net deficiency for Shares = E – C if positive, else 0.
(62) K = J for previous year.
(63) L = 2-yr avg of net deficiencies = 0.5 * (J + K).
(64) M = Net deficiency for reserve purposes for Shares = min(J,L).

IASA 2, Appendix D Canadian Annual Return (Selected Exhibits) – L
Mortgage Loans:
(70) N = Market deficiency for short term Mortgage Loans = D if book value of total
Mortgage Loans exceeds 20% of book value of total assets, else 0.
(71) P = D – A if positive and book value of total Mortgage Loans exceeds 20% of
Book Value of Total Assets, else 0.
Investment Valuation Reserve
(80) Q = I + M + N.
(81) R = F.
(82) S = H + P.
(89) Final answer = min(Q,R,S).
Summary: (All-10) This can be explained by 4 principles:
1. Book vs. Market: IVR adjusts for the excess of book over market values.
2. Long-Term Assets: IVR is concerned w/ significant differences between book and
market. Thus an insurer may only report differences in long-term securities.
3. Common Stocks: An insurer may use the 2-yr avg of excess of book over market
instead of current year alone.
4. Mortgages: if mortgages constitute 20% or more of total assets, then all mortgages
are considered to be long-term assets.
Calculation of Required Margin on Net Unearned Premiums (30.30)
 IASA 3, Chapter 16: Financial Strength (Selected Pages) – L
NAIC Insurance Regulatory Information System (IRIS) (Page 16-27)
Phase 1: Statistical Phase – 12 tests, where 4+ unusual values will trigger additional analysis.
All values are %-ages capped at -99% and 999% (Ratio 6 capped at 0%).
IRIS Tests – (warning – 13 tests now – see IRIS paper)
GROUP
Ratio Description
Leverage
1
Gross Premiums to PHS
2
Net Premiums to PHS
3
Change in Net Writings
4
Surplus Aid to PHS
Profitability
5
2-yr Overall Operating Ratio
6
Investment Yield
7
Change in PHS
Liquidity
8
Liabilities to Liquid Assets
9
Agents’ Balances to PHS
Loss Reserving 10
1-yr Reserve Development to PHS
11
2-yr Reserve Development to PHS
12
Estimated Current Reserve Deficiency to PHS
Unusual Values
Over Under
900
-300
-33
-33
15
-100
-10.0
4.5
50
-10
105
-40
-20
-20
-25
--
Leverage ratios measure premium relative to surplus, but fail to distinguish between
profitable/unprofitable business. Also, retros aren’t recognized.
Ratio 4 fails to measure quality of reinsurance and recoverability issues.

IASA 3, Chapter 16: Financial Strength (Selected Pages) – L
If Ratio 5 produces result over 100%, must then consider results of Ratios 6 – 12.
Ratio 7 is adjusted by DAC.
Ratio 8: Liquid assets are reduced by affiliated investments and excess of real estate
over 5% of liabilities. Also keep in mind the excess of market value of the bond
portfolio over its amortized value.
Phase 2: Analytical phase – when experienced financial examiners review the AS and ratios.
They’ll identify insurers in need of regulatory attention, etc.
GAAP Information
GAAP Financial Information
GAAP MD&A and Footnotes
Industry Data
Developing a Peer Group
Use of Peer Group Information
Security Issues
Capital – includes RBC and Best’s Capital Adequacy Ratio (BCAR).
Rating Agency Perspective
 OSFI MCT, "Guideline-Minimum Capital Test (MCT) for P&C Ins Cos," – SK
(selected pages)
Overview (2) – MCT Ratio = Capital Available / Capital Required. This is expected to be above
150%.
The Minimum Capital Test (MCT) for Canadian Property and Casualty Insurers
Risk-Based Capital Adequacy Framework – insurer is required to meet a “capital available
to capital required” test.
Capital Available = Equity (shares treated as equity under GAAP + contributed surplus +
retained earnings + reserves + general/contingency reserves) + subordinated indebtedness &
preferred shares whose redemption is subject to regulatory approval + Adjustment to Market
(more later).
Deduction/Adjustments (3) – the following are deducted:
Investments in subsidiaries other than Regulated Financial Institution Subsidiaries.
Investments in Affiliates.
DPACs not eligible for either the 0% or 35% capital factors.
Future Income Tax Debits not eligible for the 0% capital factor.
Goodwill and Other Intangible Assets.
Other Assets in excess of 1% of Total Assets.
Capital Required = Capital for On-Balance Sheet Assets + Margins for UEP and Unpaid
Claims + CAT reserves & additional policy provisions + an amt for reinsurance ceded to
unregistered reinsurers + capital for Off-Balance Sheet Exposures.
Minimum Requirements (4) – P&C insurers should meet the above minimum requirement.
However, regulator may proscribe a higher capital requirement.
Transitional Provisions
Application – Canadian P&C insurers.
Interpretation of Results

OSFI MCT, "Guideline-Minimum Capital Test (MCT) for P&C Ins Cos," – SK
Capital Required for On-Balance Sheet Assets (5)
Definition of Capital (6) – 3 considerations for defining capital for purposes of measuring
capital adequacy includes:
its permanence;
its being free of any obligation to make pmts from earnings; and
its subordinated legal position to the rights of P/Hs and other creditors.
Description of On-Balance Sheet Risks (7)
Counterparty Risk (8)
1. Government Grade – includes securities issued by, loans made to, etc., from: fed
govt or an agent of the Crown; a provincial or territorial govt; a municipality or school
corporation in Canada; central govt of a foreign country where security is AAA, or if
not rated – the long-term sovereign credit rating of that country is AAA.
2. Investment Grade – applies if a security’s rating meets or exceeds table below.
Rating Agency
Commercial Paper Bonds & Debentures Preferred Shares
Moody’s
P-1
A
Aa
S&P
AA
AA
Dominion Bond Rating Service
R-1 (low)
A
Pfd-2
Canadian Bond Rating Service
A-1 (low)
A
P-2
3. Not-Investment Grade (9) – everything else not in 1 and 2. Includes any security
that doesn’t have a rating.
Capital Required for Policy Liabilities (17)
Description of Risks for Policy Liabilities (18) – divides into 3 parts:
variation in claims provisions (Unpaid Claims);
possible inadequacy of provisions for UEPs;
occurrence of CATs (EQ and Other).
Margins for Unearned Premiums and Unpaid Claims – these are applied to the net amt at
risk (net of reinsurance, S&S, and SIR) by class of insurance. The UEP margin is applied to
max(net UEP, 50% of net WP in last 12 mths).
Class of Insurance
Margin on UEP Margin on Unpaid Claims
Pers & Comm Property
8%
5%
Auto – Liab & pers accident
8%
10%
Auto – other
8%
5%
Liability
8%
15%
Accident & sickness
Appendix A-1
Appendix A-1
Mortgage (federal companies only)
Appendix B
15%
All others
8%
15%
Catastrophes (19)
Earthquake
Nuclear
Mortgage Insurance

OSFI MCT, "Guideline-Minimum Capital Test (MCT) for P&C Ins Cos," – SK
Reinsurance Receivables and Recoverables (20)
Registered Reinsurers – risk comes from credit risk and actuarial risk.
credit risk = risk that reinsurer will fail to pay.
actuarial risk = risk association w/ assessing amt of required provision.
For registered Reinsurers, apply 2% capital factor to Unpaid Claims recoverable
and 0.5% to UEPs recoverable.
Unregistered Reinsurers – calculation for Unregistered Reinsurers will lead to Capital
Required of up to 110% of applicable amts on the B/S.
Capital Required for Off-Balance Sheet Exposures (21)
Description of Risks for Off-Balance Sheet Items (22)
Capital Required = (value of instrument at the reporting date – value of eligible
collateral security or guarantees) * a factor reflecting nature and maturity of instrument
* a factor reflecting the risk of default of the counterparty to a transaction.
 Feldblum (Loss Reserve Discounting), “IRS Loss Reserve Discounting,” – WN
Introduction
Investment Income and Amortization: Statutory vs Economic Income
Illustration: Offsetting
Discounting Principles
Undiscounted Loss Reserves
Discount Rate
Loss Payment Pattern
Incremental Percentages and Cumulative Differences
Determination Year and Company Election
Illustration A: No Extension of Payments
Paid to Incurred Percentages
Assumed Incremental Percentage Paid
Discounting Computations
Loss Reserve Discount Factors
Illustration B: Long-Tailed Extension of Payments
Two Year Lines
 Feldblum (Taxable Income), “Computing TI for P&C Insurance Companies,” – WN
Introduction
Proration
Common Stock Dividends
Revenue Offset
Determining Tax Liabilities
Alternative Minimum Income Tax
Minimum Tax Credit
 Feldblum (Tax Strategy), “Federal Income Tax and Investment Strategy,” – WN
Tax Rates: Investor Types
Municipal Bonds
Tax and Invested Capital
Exercises

Feldblum (Tax Strategy), “Federal Income Tax and Investment Strategy,” – WN
Capital Gains
Operating Income, Bond Portfolio, and Investment Strategy
 Blanchard, “Basic Insurance Accounting – Select Topics,” – WN
Exam 7 – US GAAP vs Statutory Differences
List of principal GAAP vs statutory differences
1. Deferred Acquisition Costs
2. Non-admitted Assets
3. Deferred Tax Assets (DTAs)
4. Invested Assets
5,6. Loss Reserves
5. Retroactive Reinsurance
6. Structured Settlements
7. Ceded Reinsurance
8. Acquisition Accounting, including “goodwill”
Additional points
Temporary vs permanent differences
Permanent temporary differences
Balance sheet versus income statement differences
 Gorvett, "Special Issues-Data Sources," Foundations of Casualty Actuarial Science – W
Data Sources
Insurance Industry Data
NAIC Annual Statement
Title page (page 1)
Balance sheet (pages 2 and 3)
Income statement (page 4)
Statement of cash flows (page 5)
Underwriting and Investment Exhibit
Analysis and Reconciliation of Assets
Five-Year Historical Data
Schedule A
Schedule D
Schedule F
Schedule P
Schedule T
Insurance Expense Exhibit
A. M. Best
Aggregates and Averages
Insurance Reports
Standard & Poor’s
ISO and NCCI
Reinsurance Association of America
GAAP Financial Statements
Other Sources of Information
Wall Street Journal

Gorvett, "Special Issues-Data Sources," Foundations of Casualty Actuarial Science – W
Ibbotson Associates
Commercial forecasting services
Academic publications
Internet-based sources

Suggested Reading: ASOP 36, "Actuarial Standard of Practice, No. 36, Statements of
Actuarial Opinion Regarding Property/Casualty Loss and Loss Adjustment Expense
Reserves." – W
Transmittal Memorandum
Background
Exposure Drafts and Public Hearing
Standard of Practice
Section 1. Purpose, Scope, Cross References, and Effective Date
1.1
Purpose
1.2
Scope
1.3
Cross References
1.4
Effective Date
Section 2. Definitions
2.1
Actuarial Work Product
2.2
Appointed Actuary
2.3
Claim
2.4
Coverage
2.5
Data
2.6
Expected Value Estimate
2.7
Exposure
2.8
Loss
2.9
Loss Adjustment Expense
2.10 Present Value
2.11 Reinsurance Contract
2.12 Reserve
2.13 Risk Margin
2.14 Statement of Actuarial Opinion
Section 3. Analysis of Issues and Recommended Practices
3.1
Professional Qualifications
3.1.1 Qualification Standards
3.1.2 Legal and Regulatory Requirements
3.1.3 Appointment as Appointed Actuary
3.2
Professional Guidance Concerning Reserve Opinions
3.2.1 Reserving Principles
3.2.2 Discounting of Reserves
3.3
Contents of a Statement of Actuarial Opinion
3.3.1 Items Covered by the Opinion
3.3.2 Types of Statements of Actuarial Opinion
3.3.3 Significant Risks and Uncertainties (Explanatory Paragraph)
3.4
Materiality
3.5
Reserve Analysis

ASOP 36, "Statements of Actuarial Opinion Regarding Property/Casualty Loss and Loss
Adjustment Expense Reserves." – W
3.5.1 Coverage Provisions
3.5.2 Changing Conditions
3.5.3 External Conditions
3.5.4 Data
3.5.5 Assumptions
3.5.6 Changes in Assumptions, Procedures, or Methods
3.6
Uncertainty
3.6.1 Sources of Uncertainty
3.6.2 Aggregation and External Data Sources
3.6.3 Expected Value Estimate
3.6.4 Range of Reasonable Reserve Estimates
3.6.5 Adverse Deviation
3.7
Reinsurance Ceded
3.7.1 Gross vs. Net Reserves
3.7.2 Collectibility
3.7.3 Uncollectible Reinsurance and Commutation
3.7.4 Risk Transfer Requirements
3.8
Review Opinion
3.8.1 Responsibilities of Reviewing Actuary
3.8.2 Responsibilities of Reviewed Actuary
3.9
Financial Reporting Items Affected by Loss and LAE Reserves
3.10 Adequacy of Assets Supporting Reserves
Section 4. Communications and Disclosures
4.1
Form and Content of Statement
4.2
Documentation
4.3
Reliance on Others for Supporting Analysis
4.4
Reliance on Opinions of Other Actuaries
4.5
Changes in Opining Actuary’s Assumptions, Procedures, or Methods
4.6
Disclosure in the Opinion
4.7
Prescribed Statement of Actuarial Opinion
4.8
Deviation from Standard
Appendixes
Appendix 1 – Background and Current Practices
Background
Current Practices
Appendix 2 – Comments on the 1999 Third Exposure Draft and Subcommittee Responses

COPLFR P&C, “P&C Practice Note, Statements of Actuarial Opinion on P&C Loss
Reserves as of December 31, 2006.” – W
Introduction
Organization
Changes From 2005 Practice Note
Advance Notification of Future Changes
Electronic Filing

COPLFR P&C, “P&C Practice Note, Statements of Actuarial Opinion on P&C Loss
Reserves as of December 31, 2006.” – W
#1 Appointment of Appointed Actuary – The Qualified Actuary must be appointed by the BOD (or
committee). The Actuary must report to the BOD on the items within the scope of the Opinion. He
must able make available the Opinion to the BOD.
Discussion – the Appointed Actuary
Illustrative Wording
#1A Definitions – a qualified actuary is a person who is: a member of the CAS in good standing OR a
member in good standing of the AAA who has been approved as qualified for signing casualty loss
reserve opinions by the Casualty Practice Council of AAA.
A long duration contract = when the contract term is >= 13 mths AND insurer can neither
cancel nor increase the premium during the contract term. This excludes financial guaranty,
mortgage guaranty and surety contracts.
Discussion – Actuarial Report
A few exemptions:
Exemption for Small Companies: if an insurer has less than $1M direct + assumed WP
during a CY and less than $1M direct + assumed loss & LAE reserves, then they may
submit an affidavit under oath specifying those amounts.
Exemption for Insurers under Supervision or Conservatorship:
Exemption for Nature of Business
Financial Hardship Exemption – such hardship exists when cost of producing an
Actuarial Opinion would exceed lesser of:
i) 1% of insurer’s capital & surplus reflected in the latest quarterly statement;
ii) 3% of insurer’s direct + assumed WP during the CY.
#1B Exemptions
#2 Content – statement must consist of an ID paragraph, a scope paragraph, an opinion paragraph,
plus one or more additional relevant comments paragraphs.
#3 Identification Paragraph – should indicate the Appointed Actuary’s relationship to the company,
qualifications for acting as an appointed actuary, date of appointment, and that the appt was made by
the BOD, or by a committee of the Board.
Discussions – Sections 2 and 3
#4 Scope Paragraph, Exhibits A and B, and Reliances – should include sentence such as: “I have
examined the actuarial assumptions and methods used in determining reserves listed in Exhibit A, as
shown in the AS …” Exhibit A should list items and amts with respect to which the Appointed
Actuary is expressing an opinion. Then the Actuary should state that those items reflect the Loss
Reserve Disclosure items (3 thru 8) in Exh B. It should also include: “In forming my opinion …, I
relied upon data prepared by ____. I evaluated that data for reasonableness & consistency. I also
reconciled that data to Sch P – Part 1… In other respects, my examination included such review of the
actuarial assumptions and methods used and such tests of the calculations as I considered necessary.”
Discussion – Data – see Appendix 1.
Discussion – Methodology
Illustrative Wording - Methodology
#5 Opinion Paragraph
Should include a sentence stating that the amounts carried in Exhibit A:
meet the requirements of the insurance laws of the state of domicile.
are computed according to accepted actuarial standards and principles.
make a reasonable provision for all unpaid losses/LAE.

COPLFR P&C, “P&C Practice Note, Statements of Actuarial Opinion on P&C Loss
Reserves as of December 31, 2006.” – W
(make a reasonable provision for the UPR for long duration contracts.)
5 categories
a. Determination of Reasonable Provision.
b. Determination of Deficient or Inadequate Provision.
c. Determination of Redundant or Excessive Provision.
d. Qualified Opinion. – when an item is in question because it can’t be reasonably
estimated – actuary should state a reasonable provision except for these items.
e. No Opinion – when the data isn’t sufficient to support a conclusion.
Discussion – The Opinion – A reserve is reasonable if it is within the actuary’s range of
reasonable reserve estimates. However, this range is often considerably narrower than the
range of possible outcomes of the ult settlement value of the reserve.
Discussion – Deficient or Redundant Provision
Illustrative Wording – Deficient or Redundant Provision – The provision for unpaid losses
and LAE is $X less (greater) than then min (max) amt I consider necessary to be within the
range of reasonable estimates.
#6 Relevant Comments Paragraph
Discussion – Risk of Material Adverse Deviation
Discussion – Additional Relevant Comments
Discussion – Change in Methods and Assumptions – only material changes need to be
discussed.
Illustrative Wording – Change in Methods and Assumptions
Discussion – Other Disclosures in Exh B – Discounting and Salvage/Subrogation
Discussion – Other Disclosures in Exh B – Pools and Associations – three considerations:
1. Are pool reserves material?
2. Does the company book what the pool reports (w/ no analysis), perform an
independent analysis and adjust the pool’s reported reserves, rely on the pool actuary’s
opinion, or some combination of the above?
3. If there is a lag in booking of pool losses, does the company record this? Are
premiums treated similarly? Are these items material?
Illustrative Wording – Pools and Associations
Discussion – Other Disclosures in Exh B – Mass Tort Exposure
Either the Company has or has not provided enough coverage that could reasonably
result in material levels of A&E liability claims activity.
Actuary may comment on:
whether there appears to be a material exposure;
the aggregate $ amt of reserves held for this exposure;
the significant variability and uncertainty inherent.
Illustrative Wording – Asbestos and Environmental Liability
Discussion – Retroactive Reinsurance/Financial Reinsurance – always required by AS
instructions.
Retroactive Reinsurance = loss-portfolio transfers
Financial reinsurance = other reinsurance arrangements not meeting FASB 113
requirements for transfer of risk.
Illustrative Wording – Retroactive Reinsurance/Financial Reinsurance
Discussion – Reinsurance – always required by AS instructions.

COPLFR P&C, “P&C Practice Note, Statements of Actuarial Opinion on P&C Loss
Reserves as of December 31, 2006.” – W
If ceded reinsurance is not material relative to stat net reserves & surplus, no more info
is required.
Illustrative Wording – Reinsurance – insurer may comment on the following:
1. Immaterial ceded reinsurance levels.
2. Material amts of ceded reinsurance, w/ none to troubled reinsurers.
3. Inadequate reserves for collectibility problems.
4. Miscellaneous – Public Information.
Discussion – IRIS Ratios
Illustrative Wording – IRIS Ratios
#7 Actuarial Report and Underlying Work Papers
Discussion – Actuarial Report
#8 Signature of Actuary
#9 Errors in Statement of Opinion
Discussion – Sections 8 and 9
Discussion – Exhibit A: Scope
Discussion – Retroactive Reinsurance Reserve
Discussion – Premium Reserves
Discussion – Disclosure Items
Actuarial Opinion Summary
Discussion – Filing the AOS:
Discussion – Actuarial Opinion Summary:
Discussion – Section 6:
Appendices
1 Evaluation and Reconciliation of Data
Note
Discussion
2 Frequently Asked Questions
1. The term material is used several times in the practice note. How does an
actuary assess materiality?
2. When is a carried reserve reasonable?
3. What if the net loss and loss expense reserves and the direct plus assumed loss
and loss expense reserves make reasonable provisions for the unpaid loss and loss
expense obligations of the company, but some of the amounts booked for certain
subsets of the carried reserves do not in isolation make reasonable provisions for
the associated portions of the company’s obligation?
4. Why would someone issue a qualified opinion? How exactly should an actuary
indicate that an opinion is qualified?
5. How should an opining actuary treat a situation where there is a portion of
reserves for which he or she did not perform an independent analysis? Does this
necessarily mean that the opinion is qualified? Are there situations in which an
unqualified opinion may be offered even though the actuary did not review all the
reserves? If so, when should this be disclosed in the opinion?
6. How does the opining actuary usually treat pools where an opinion is provided
by another actuary on behalf of the pool?
7. What is a clean opinion?

COPLFR P&C, “P&C Practice Note, Statements of Actuarial Opinion on P&C Loss
Reserves as of December 31, 2006.” – W
8. The NAIC Instructions for the Annual Audited Financial report, regarding the
auditor’s review of data used by the Appointed Actuary, require the auditor to
“…obtain an understanding of the data identified by the Appointed Actuary as
significant…” to the decision regarding the reasonableness of reserves. Within this
context, how should the actuary define the term “significant”?
3 NAIC Recommended Language for Actuarial Opinion for Pools/Associations
NAIC Guidance for Actuarial Opinions for Pools and Associations
4 Statements of Actuarial Opinion on Title Loss Reserves
Actuarial Opinion
Discussion – Opinion
Discussion – Salvage & Subrogation
Discussion – Reconciliation of Data
Discussion – Relevant Comments
5 Miscellaneous Illustrative Wordings in Common Use
6 Intercompany Pooling
7 Materiality – CAS VFIC
8 Unearned Premium for Long Duration Contracts
Opinion Language
Illustrative Wording
9a Regulatory Guidance Brief – Statements of Actuarial Opinion for year-end 2006
9b Regulatory Guidance Brief – Actuarial Opinion Summary for year-end 2006
10a 2006 Actuarial Opinion Instructions
Exhibit A: Scope
Loss Reserves:
A. Reserve for Unpaid Losses
B. Reserve for Unpaid LAE
C. Reserve of Unpaid Losses – Direct & Assumed
D. Reserve for Unpaid LAE – Direct & Assumed
E. Retroactive Reinsurance Reserve Assumed
F. Other Loss Reserve items on which the Appointed Actuary is
expressing an Opinion.
Premium Reserves:
G. Reserve for Direct & Assumed UEPs for Long Duration Contracts
H. Reserve for Net UEPs for Long Duration Contracts
I. Other Premium Reserve items on which the Actuary is expressing an
Opinion.
Exhibit B: Disclosures
1. Materiality Standard expressed in $US.
2. Statutory Surplus
3. Anticipated net S&S included as a reduction to loss reserves as reported in
Sch P.
4. Discount included as a reduction to loss reserves and LAE reserves as
reported in Sch P.
4a. Nontabular Discount
4b. Tabular Discount

COPLFR P&C, “P&C Practice Note, Statements of Actuarial Opinion on P&C Loss
Reserves as of December 31, 2006.” – W
5. Net reserves for loss and LAE for the company’s share of voluntary &
involuntary U/W-ing pools & associations’ unpaid losses & LAE included in
reserves shown in AS.
6. Net reserves for losses & LAE that company carries for the following
liabilities in AS:
6a. Asbestos, as disclosed in Notes.
6b. Environmental, as disclosed in Notes.
Note: These reserves should exclude amts relating to contracts
specifically written to cover A&E exposures.
7. Total claims made extended loss & LAE reserve (Sch P Interrogatories).
7a. amt reported as loss reserves.
7b. amt reported as UPRs.
8. Other items on which the Appointed Actuary is providing Relevant
Comments.
10b 2006 Actuarial Opinion Summary Instructions
11 Guidance Regarding Data Testing Requirement

Conger, "How Might the Presentation of Liabilities at Fair Value Have Affected the
Reported Results of U.S. Property Casualty Insurers" – W – Chapter 3 (2004)
3.1 Definition of Fair Value
1999 IASB definition: the amt for which an asset could be exchanged or a liability settled
between knowledgeable, willing parties in an arm’s length transaction.
1999 FASB definition: an estimate of the price an enterprise would have realized if it had sold
an asset or paid if it had been relieved of a liability on the reporting date in an arm’s length
exchange motivated by normal business considerations. That is, it is an estimate of an exit
price determined by market interactions.
2003 FASB definition: the amt at which an asset or liability could be exchanged in a current
transaction between knowledgeable unrelated willing parties when neither is acting under
compulsion.
Joint Working Group (JWG) of Standard Setters implies a 3-level hierarchy:
Level 1: Estimate should be determined directly (by reference to current observable
market prices of identical assets or liabilities).
Level 2: If it can’t be determined directly, then estimate should be determined via
proxies (by reference to market prices for similar assets or liabilities).
Level 3: If it can’t be determined directly or via proxies, then the estimate should be
determined via valuation methods (using generally accepted analytic approaches based
on theoretical market pricing models).
If valuation methods must be used, it can take several forms:
market methods: valuations based on multiples drawn from transactions involving
comparable assets or liabilities.
income methods: PV techniques or option pricing models.

Conger, "How Might the Presentation of Liabilities at Fair Value Have Affected the
Reported Results of U.S. Property Casualty Insurers" – W – Chapter 3 (2004)
cost methods: replacement or reproduction cost of an asset in comparable condition.
A good test is to compare valuation method results with observable results.
IASB has indicated that an undiscounted measure is inconsistent w/ fair value. And the
measurement of fair value should include an adj for the premium market would demand.
FASB refers to these as expected present value approaches.
3.2 Fair Value in a P&C Insurance Context
3.3 Estimating the Fair Value of Policy Benefit Liabilities
3.4 Status of IASB and FASB Deliberations
Financial Accounting Standards Board
International Accounting Standards Board
3.5 Considerations in Evaluating the Fair Value Proposal – in addition to the 3 listed below, one
should also consider: neutrality of the measure and the cost of the measure.
Reliability of the Measure – faithfulness, verifiability, not certainty.
Relevance to Users
Comparability and Consistency of the Measure

Feldblum (RBC), “NAIC P/C Ins Company RBC Requirements," PCAS – W (exclude Sec. 11
and related Exhibits)
1. Introduction
Instructions, Examples, and Analysis
2. Types of Risk
3. Asset Risks – these charges are largely adopted from the life insurance formula. These are more
important to life insurance because:
1) Practice: capital-to-asset ratios: P&C companies tend to have assets 2 to 3 times its capital,
and life insurance companies tend to have 10 times its capital. A 5% asset risk charge for life
companies is about 50% of surplus, while for P&C it’s more like 10 – 15%.
2) Theory: asset risks are more important for life insurance companies, especial when
investments are combined with life insurance products. P&C products are more for insurance
protection only.
Unaffiliated Fixed Income Securities – the charge reflects default risk, and the charge ranges
from 0% for Treasury securities to 30% for bonds in Class 6.
Preferred Stocks – the charge is set to the comparable bond charge + 2%. The charge is
capped at 30%, so “class 6 preferred stock” charge is 30%. Also, there are no govt preferred
stocks. Bond charges are included in R(1) while preferred stock charges are in R(2).
Cash Risks – 0.3% charge (similar to the Class-1 bond charge)
Bond Size Adjustment Factor – based on # of issuers. For the 1st 50 issuers, the charge is
250%. For 51-100 issuers, the charge is 130%. For 101-400 issuers, the charge is 100%. The
remaining issuers get 90%. Take a weighted average of all the charges, subtract 100%, and add
that charge to the “pre-size factor bond RBC charge” to get the “total bond RBD charge. For
example: 500 issuers: [50 * 250% + 50 * 130% + 300 * 100% + 100 * 90%] / 500 = 116%. So,
add 16% to get the total charge.
Unaffiliated Common Stocks – originally 30% charge, but dropped to 15%.
Three Perspectives
Asset Concentration Factor
Interest Rate Risk
Insurance Affiliates

Feldblum (RBC), “NAIC P/C Ins Company RBC Requirements," PCAS – W
Domestic Insurance Subsidiary – RBC requirement is passed on to parent.
Alien Insurance Subsidiary – charge = 50% of reported value of enterprise or of the securities
it has issued, such as stocks or bonds.
Investment Subsidiary – charge determined by “looking through” the subsidiary to its
investments holdings. An investment subsidiary is any subsidiary engaged primarily in the
ownership and management of investments for the insurer.
Non-Insurance Subsidiaries – charge is 22.5% of its carrying value.
Three Principles
1. RBC charge for a parent company is capped at the carrying value of the subsidiary.
2. If Parent Ins Co owns Non-Ins Holding Co, which owns Subsidiary Insurance Co,
then Subsidiary Insurance Co is indirectly owned by Parent Ins Co. If Non-Ins Holding
Co. has carrying value of $200M, and Subsidiary is at $100M with a RBC requirement
of $50M, then the RBC charge to Parent for the investment in Non-Insurance Holding
Co = RBC requirement of Subsidiary (capped at carrying value) + 22.5% of the
difference between carrying values of the two subsidiaries. Charge = $50M + 22.5% *
($200 M - $100M) = $72.5M.
3. If Parent Ins Co owns preferred stock or bonds of Affiliated Ins Co, then the RBC
charge to Parent is limited to the smaller of: the carrying value of preferred stock/bonds
and amt of “excess RBC” above amts allocated to common stock investments in
affiliated insurance companies.
Investments in insurance affiliates/subsidiaries are included in R(0), while noninsurance subsidiaries are included in R(1) and R(2).
Off Balance Sheet Risks – 1% charge. This includes: non-controlled assets, guarantees for
affiliates, and contingent liabilities.
4. Credit Risk – a 10% charge for reinsurance recoverables
Rationale for the Reinsurance Charge
Reinsurance collectibility problems contributed to several major ins co insolvencies in
the mid-1980s.
Some financially troubled companies have used “sham” reinsurance transactions w/
affiliated companies to hide financial problems.
Many reinsurance contracts don’t contain full risk transfer.
Criticism of the Reinsurance Charge
1. Incentives: high charge for reinsurance is a disincentive to reinsure primary business.
(NAIC responds: the 10% charge is lower than most reserving risk charges.)
2. Quality of Reinsurer: The charge doesn’t differentiate by type of reinsurer. (NAIC
responds: this would serve as a rating agency for reinsurers – so no change made.)
3. Collateralization: The charge doesn’t consider secured recoverables.
The RAA Study
The Provision for Reinsurance
Involuntary Market Pools
Intercompany Pooling Agreements
Miscellaneous Receivables – a 5% charge
5. Underwriting Risks
Reserving Risks- this charge measures the susceptibility of loss reserves to adverse
developments and is quantified separately by LOB using Sch P data for the past 10 yrs.

Feldblum (RBC), “NAIC P/C Ins Company RBC Requirements," PCAS – W
Industry Adverse Development – the charge begins w/ the calculation of adverse
development ratios by Sch P LOB. NAIC calculated these in 1993 and these ratios are
“frozen”. However, they can by updated by the NAIC as the need arises.
Take each company’s adverse loss development ratios by Sch P LOB, where the
numerator = the increase in est ult incurred losses between 2 statement dates (from Sch
P, Part 2); and the denominator = the held loss reserves at the earlier statement date
(subtracting paid losses [Part 3] from incurred losses [Part 2] in Sch P).
Then company ratios are averaged to determine the base industry reserve charge. And
these charges are used by everyone.
“Worst Case Year”
Some have argued that small insurers have greater random fluctuations in their ratios,
and that simple averages were used instead of weighted averages. This led to an
upward bias in the NAIC charge. NAIC responds: the simple avgs are not uniformly
higher than the weighted avgs; and using weighted avgs would give undue influence to
the results of the largest carriers.
To determine the charge, for each LOB, consider the ratios for each year, and choose
the largest ratio.
Interest Discount Factor – this takes into account the reserve discounts not allowed by SAP.
RBC formula uses a flat 5% interest rate in its calculations.
The “Net” Industry Charge – an example: Private auto: 25.4% is the “worst case year”
industry ratio. Use of a 5% interest rate deduction, the reserves are 92.1% the value of
undiscounted. Thus the industry charge is 1.254 * 0.921 = 1.155 or 15.5%.
Company Differences – the formula considers company’s own avg loss development by LOB
over the past 9 yrs (from Sch P, Part 2) to that of the industry.
Avg loss development = (current – initial) / initial incurred losses; where current
incurred losses = sum(inc loss at current statement date for 9 AYs prior to current year)
and initial incurred losses = sum(inc loss at initial statement dates).
Above example continues. Take the company’s avg adverse development (1.04) and
divide by the industry’s (1.065) to get 0.977. Multiply this by the worst year (25.4%) to
get 0.248. Then take simple avg between this and the industry worst year:
½ * (.248 + .254) = 0.251. Finally multiply this by implicit interest margin: 1.251 *
0.921 = 1.152 or 15.2% of carried reserves.
Note that the company’s worst-year is never used.
Company Adverse Development
Spreading Across Lines
Written Premium Risk – one risk to consider is that the company’s future business will be
unprofitable. The RBC formula uses a time horizon of 1 year. As a proxy, the formula uses the
volume of business written during the most recent CY. This charge is determined similarly as
the reserving risk charge.
Interest Discount Factor – not same as above. This refers to investment income resulting
from time lag between premium collection and loss payment. Take the “worst case year” loss
ratio by an investment income factor (derived from IRS payment pattern and a 5% discount
rate). The previous adjustment is for investment income from policy inception to final loss
payment for a newly issued block of business. The latter adjustment reflects the expected

Feldblum (RBC), “NAIC P/C Ins Company RBC Requirements," PCAS – W
investment income on assets supporting loss reserves currently held by the company for all
AYs combined.
Company Experience
Combined Ratios
Unearned Premium Reserves – WP risk is the risk that U/W-ing results turn out to be worse
than expected on the coming year’s U/W-ing activities. Reserving risk is the risk that U/W-ing
results turn out to be worse on coverage that’s already been earned, but claims payments are
not yet fully settled. Between these is an intermediate risk: that U/W-ing results turn out to be
worse on coverage that has already been written, but not yet earned. Should we include a
charge for this kind of risk?
The Underwriting Risks Time Line
UPR
Risk
Reserving
Risk
1999
2000
WP Risk
2001
Equity in the Unearned Premium Reserves – originally there was a charge for this risk. If
insurance companies held “net” UPRs (net of prepaid expenses), then the factors used to
compute this charge would be about the same as those to compute the WP risk charge. But
SAP requires UPR gross of prepaid expenses and does not allow for DPAC. For most
companies, the gross UPR is about 20-25% greater than needed. This is “equity” in the UPR.
The original formula contained an offset for prepaid acquisition expenses, resulting in a zero or
insignificant charge. Thus this charge was completely deleted from the formula.
Occurrence Policies versus Claims-Made Policies – some argue that since CM policies do
not have IBNR development (though they do have development on reported claims), that CM
policies have less adverse loss development. Though studies show this may be true, the
difference wasn’t enough to yield meaningful conclusions.
Quantification and Data – NAIC asked: how significant is the difference in adverse loss
development between Occurrence and CM? And if different reserving risk charges are
incorporated, how should the NAIC collect the data needed to quantify the offset?
Implementation and Adoption – in response, the NAIC Blanks Task Force split Sch P into
Occurrence and CM. Plus the current RBC formula reduces the reserving risk charge and the
WP risk charge for Med Mal CM business by 20% compared to Occurrence.
Offset for Loss-Sensitive Contracts – these will increase the reserving risk charge, due to the
expected higher level of risk. It also affects the premium risk charge to guard against
unexpected UW-ing results during the coming year.
Risks in Retrospective Plans
Magnitude of the Offset
Definition of a Loss-Sensitive Contract
Diversification by Line

Feldblum (RBC), “NAIC P/C Ins Company RBC Requirements," PCAS – W
loss concentration factor = reserves in largest LOB / total reserves for all lines. After
adjusting for loss-sensitive business and for CM business, multiply the reserving risk
charge by 70% + 30% * loss concentration factor.
premium concentration factor = WP in largest LOB / total WP in all LOBs. Then
multiply WP charge by 70% + 30% * premium concentration factor.
Growth Charges
Determination of the Growth Charge
Adoption
6. The Covariance Adjustment
When first introduced in 1991, Robert Butsic (of Fireman’s Fund) argued that simple
summation is inappropriate since it assumes various risks occur simultaneously. He notes:
1. Non-insurance asset risk is independent of U/W-ing risk.
2. Historically, the correlation between stock & bond returns is only 14%.
3. Reserve and WP risk are not well correlated. Only 26%.
4. Based on judgment, reserve growth risk seems to be highly correlated w/ reserve risk.
Risk Categories
R(0): Investments in insurance affiliates; non-controlled assets; guarantees for affiliates;
contingent liabilities.
R(1): Fixed income securities (cash, bonds, bond size adj factor, mortgage loans); short
term investments; collateral loans; asset concentration adj for fixed income securities.
R(2): Equity investments (common stocks, preferred stocks, real estate); other invested
assets; aggr write-ins for invested assets; asset concentration for equity investments.
R(3): Credit risk (reinsurance recoverables, other receivables)
R(4): Reserving risk (basic reserving risk charge, offset for loss-sensitive business, adj
for CM business, loss concentration factor, growth charge for reserving risk)
R(5): WP risk (BP risk charge, offset for loss-sensitive business, adj for CM business,
premium concentration factor, growth charge for premium risk)
Further notes:
1. After credit risk charge is calculated, ½ is removed from R(3) and added to
R(4) to compensate for inconsistency between interdependence of (reserving
risk and reinsurance collectibility risk) and the lack of a covariance term in the
square root rule.
2. R(0) appears outside the square root rule, and all other terms are inside.
3. The asset concentration factor in R(1) considers all assets (R(1) and R(2))
combined and not separately.
The Square Root Rule
Total capital requirements = R0  R12  R22  R32  R42  R52
Remember, that R(3) is ½ the credit risk and R(4) is the reserving risk + ½ the credit
risk.
Also note the lack of covariance terms; the exclusion of R(0) charge from square root;
and the marginal capital effects of each risk element.
Covariance Terms
The true total capital requirement depends on the meaning of “capital requirement”; the
pdf of each risk element; and the interdependence of the risk elements.

Feldblum (RBC), “NAIC P/C Ins Company RBC Requirements," PCAS – W
Remember the complete square root rule on Risk A and Risk B:
Total =
A 2  2 * Cov( A, B) * A * B  B 2
If there is perfect correlation, then the true total capital requirement is the straight sum
of the individual risk elements. If there is no correlation, then the square root rule
works. The true amt is probably in between the two.
Butsic however argues:
The square root rule overstates the true amt if the risk elements have normal or
lognormal distributions;
The correlation among the risk factors is weak, so any underestimation is small;
The one important correlation is accounted for by moving ½ from R(3) to R(4).
Conclusion: the 1st two arguments offset each other, and the unadjusted square root rule
gives a reasonably accurate result.
The Charge for Subsidiaries – this (R(0)) is placed outside the square root formula because
it’s believed that any change in organizational structure of the company should not change the
overall capital requirement.
Marginal Effects
Cj
; with TCR = total capital requirement; C(j) = individual capital
TCR / C j 
2
C
 i
requirement.
Risk categories w/ large pre-covariance charges (reserving risk) provide a high postcovariance contribution for each dollar of risk charge.
Risk categories w/ low pre-covariance charges (default risk) provide opposite.
Once covariance adjustment was used, it became clear that marginal effects of the asset
risk charges were extremely small, which discouraged investment ploys as a way to
reduce RBC requirements.
RBC requirements are dominated by the U/W-ing risk charges (especially reserving
risk), but the reserving risk do not adequately distinguish financially-troubled
companies from sound companies, and the charges may give the wrong incentives that
may actually raise insolvency risks.
7. Other Issues
Quantifying the Capital Charge for Underwriting Risk – RBC formula balances 3
considerations as follows:
1. Accuracy: Capital charges must accurately reflect the risks faced by insurance
companies.
2. Simplicity: rationale for charges should be understood by company executives and
state regulators.
3. Incentives: The RBC formula should provide incentives for companies to strengthen
their capital structures.
Worst Case Year
Statistical Quantification
Credibility

Feldblum (RBC), “NAIC P/C Ins Company RBC Requirements," PCAS – W
Incentives – in practice, the adequacy of loss reserves may vary greatly from year to year. A
reduction in reserve adequacy is an increase in stat surplus, and vice versa. Since bulk reserve
requirements can’t be estimated precisely, troubled companies can choose an unreasonably low
estimate to increase surplus and hide financial weakness. RBC may change this behavior.
Reserve Strengthening and Weakening – however, RBC gives 3 incentives for companies to
report inadequate reserves:
1. Reducing reserves increases stat surplus. Now even the financially strong companies
will examine their RBC ratios to seek out the least costly ways to raise them.
2. Reducing reserves lowers the reserving risk charge. Since this charge is most
dominant, its covariance adjustment is the greatest – giving an incentive for everyone to
lower their reserves.
3. Reducing reported reserves also reduces the reported adverse development.
One solution is to base the reserving risk charge on indicated reserves, not reported
reserves.
NAIC responds: alignment of reported reserves w/ indicated reserves is the task of the
appointed actuary and state insurance department examiners, and not the responsibility
of the RBC formula. Also consider that current requirement for the Opinion may help
prevent deliberate reserve underestimations. Finally, reserve underestimations today
would increase future development and the future reserving risk charge.
WC and Tabular Discounts
Duration and Volatility
Criticisms
Tabular Discounts
Surplus Adjustments – RBC formula removes non-tabular discounts from P/H Surplus, but
retains tabular discounts. This adjustment is phased in over a 5 yr period. However, the
reserving risk charge is applied to reserves gross of non-tabular discount w/ no phase-in.
Definition of Tabular Discounts
8. Implementation of RBC Requirements
Minimum, Target, and Triple-A Standards – state statutes will define the minimum amt of
surplus an insurance company must hold to obtain a license ($1M to $5M). However, the states
make no attempt to define “optimal” or “target” amts a company should hold.
The Actuarial Committee’s “White Paper” – this committee was tasked to study the
parameters used in the RBC formula. The answer depends on the use of the formula.
If the formula defined a minimum amt, then low parameters are appropriate.
If used to define a target amt representing the “optimal” capital position for an insurer
then higher parameters would be appropriate.
If used to represent a “Triple-A” standard, or an amt of capital only the strongest
companies would hold, then even higher parameters would be appropriate.
The NAIC responded indirectly that the formula is meant to be a minimum level.
9. Regulatory Action
Regulatory Hesitancy
Levels of Action
The ACL Level – authorized control level = a %-age of RBC standards. Has gone from 50%
to 40% back to 50%.

Feldblum (RBC), “NAIC P/C Ins Company RBC Requirements," PCAS – W
Four Action Levels – RBC ratio = company’s actual (adj) surplus / RBC surplus. The actual
surplus is adjusted for RBC purposes by removing the amt of non-tabular loss reserve discounts
from surplus. Tabular discounts are not adjusted. ACL benchmark = 50%.
Company Action Level – (75% to 100% of RBC standard), or 150% to 200% of ACL
benchmark. No action required of state insurance department. However, the company
must submit a plan of action to the insurance commissioner explaining how the
company intends to obtain the needed capital or reduce operations/risks.
Regulatory Action Level – (50% to 75% of RBC standard), or 100% to 150% of ACL
benchmark. The company must submit a plan. The commissioner has the right to take
corrective action (such as restricting new business). But such action is discretionary.
Authorized Control Level – (35% to 50% of RBC standard), or 70% to 100% of ACL.
Regulatory action is still discretionary, but commissioner is “authorized” to take control
of the company.
Mandatory Control Level – (Below 35% of RBC), or below 70% of ACL. The
commission must rehabilitate or liquidate the company.
Implementation – NAIC’s practice is to propose “model laws” that are enacted by each state’s
legislature. This can lead to long delays and inconsistencies. Therefore, NAIC decided to do
the following:
1) the proposed model law will not specify the RBC formula, since the state legislature
could then change the formula. Rather, the model law requires RBC requirements.
2) in late 1990, NAIC adopted a “Solvency Policing Agenda” which says a state’s DOI
will be accredited only if it passes the required model laws.
Purposes of the RBC Standards – these are ranked from intended purposes to prohibited uses:
1) Minimum Capital Requirements: covered above.
2) Solvency Monitoring: RBC can be used in conjunction w/ more comprehensive
financial examinations to determine solvency.
3) Legal Authority: RBC act gives the insurance commissioner a legal authority to
intervene if a company appears to be financially troubled.
4) Rate-Making: PROHIBITED BY NAIC – RBC may be used to determine needed
capital for a ROE rate filing.
5) Marketing: PROHIBITED BY NAIC – RBC might be used to identify “stronger” or
“weaker” companies.
The goals of NAIC’s RBC is to:
Relate capital & surplus requirements to the risks inherent.
Establish a universally recognized capital standard.
Provide regulators w/ the authority to enforce compliance w/ more appropriate
capital requirements.
10. Conclusion
 NAIC IRIS, “NAIC Insurance Regulatory Information System” – P/C Ratios – SKN
Ratio Ranges
Overall Ratios
Ratio 1 – Gross WP to P/H Surplus = Gross WP / PHS * 100.

NAIC IRIS, “NAIC Insurance Regulatory Information System” – P/C Ratios – SKN
Gross WP = (Direct WP) + (Reinsurance Assumed-Affiliates) + (Reinsurance
Assumed-Non-Affiliates).
If PHS = 0 or negative, then ratio = 999.
If PHS is positive and Gross WP is negative then ratio = 0.
Range up to 900.
If disparity between Ratio 1 and 2 is large, the insurer may be relying too much on
reinsurance. Under pooling circumstances, this ratio may be skewed.
Long-tail lines (WC) should maintain a lower Ratio 1.
You should also consider %-age of assumed vs. direct to see if the insurer U/Ws its own
business or not.
Insurers with stable profits (see Ratio 5) can better handle a high Ratio 1.
Ratio 2 – Net WP to P/H Surplus = Net WP / PHS * 100.
If PHS = 0 or negative, then ratio = 999.
If PHS is positive and Net WP is negative then ratio = 0.
Range up to 300.
If Ratio 2 is near 300%, you should also consider Ratio 4.
If the insurer is an affiliate, look at Ratio 2 for the consolidated group.
Insurers w/ stable profits (see Ratio 5) can better handle a high Ratio 2.
Long-tail lines (WC) should maintain a lower Ratio 2.
How adequate is the reinsurance protection against CATs? What is the general quality
of the reinsurers?
Ratio 3 – Change in Net Writings = Change in Net Writings / Net WP Prior Year * 100.
Change in Net Writings = Net WP Current Yr – Net WP Prior Year.
If Net WP Current and Prior are both 0 or negative, then result = 0.
If Net WP Current is positive and Prior is 0 or negative, then result = 999.
Large increase could signal abrupt entry into new LOBs or territories, or it could mean
an increase in cash flow to meet current loss pmts.
Large decrease could signal discontinuances of LOBs, loss of market share, or increased
use of reinsurance.
Range = -33 to 33.
If unstable result, consider Ratio 9 to see if assets are properly valued and liquid enough
to meet possible cash demands.
Also, consider Ratios 11 – 13 to consider reserve adequacy.
Increased writings not necessarily bad if accompanied by a low Ratio 2, adequate
reserves (11 – 13), profitable operations (5) and stable product mix.
Ratio 4 – Surplus Aid to P/H Surplus = Surplus Aid / PHS * 100.
Surplus Aid = Ceding Commissions Ratio * (Ceded Reins UEP-Non-affiliates).
Ceding Commissions Ratio = Reins Ceded Comms / Reins Ceded Premiums.

NAIC IRIS, “NAIC Insurance Regulatory Information System” – P/C Ratios – SKN
Reins Ceded Comms includes Reins Ceded Contingent Comms.
Reins Ceded Premiums includes Affiliates + Non-Affiliates.
Ceded Reins UEP – Non-affiliates includes “Total Auth & Unauth Other US
Unaffiliated” and “Total Auth & Unauth Mandatory & Voluntary Pools” and “Total
Auth & Unauth Other Non-US”. (Sch F – Pt 3.)
If Reins Ceded Premiums or Surplus Aid is 0 or negative, then result = 0.
If Surplus Aid positive and PHS is 0 or negative, then result = 999.
Range up to 15%.
High ratios may signal that PHS is inadequate, or that Surplus Aid is improving results
in other ratios.
If you get a high result, consider taking out Surplus Aid out of PHS and recalculate
Ratios 1,2,7,10,13. You can do this easily by dividing each existing ratio by (1 –
surplus aid ratio result).
Profitability Ratios
Ratio 5 – Two-Year Overall Operating Ratio = (2-Yr LR) + (2-Yr Exp Ratio) – (2-yr
Investment Income Ratio).
2-yr LR = (Losses, LAE, & PH Divs Current & Prior Yr) / (EP Current & Prior Yr).
2-yr expense ratio = (Other U/W-ing Expenses – Other Income Current & Prior Yr) /
(Net WP Current & Prior Yr).
2-yr investment income ratio = (Investment Income Earned Current & Prior Yr) / (EP
Current & Prior Yr).
If all the numerators added (minused) together is 0 or negative, then result = 0.
If EP or Net WP is 0 or negative then result = 999.
Range up to 100%.
You may need to consider Ratios 11 and 13, since prior yr reserve development or
current reserve deficiency may understate/overstate the true operating position. If Ratio
11 is outside the usual range, you should recalculate Ratio 5 by eliminating prior yr’s
development to get a more accurate picture.
Ratio 6 – Investment Yield = Net Investment Income Earned / (Avg Cash & Invested Assets
Current & Prior Yr) * 200.
The denominator = [Total Cash & Invested Assets + Investment Inc Due & Accrd –
Borrowed Money Current & Prior Yr] – Net Investment Income Earned.
Result capped at bottom by 0.
Range from 3.0 to 6.5.
Low yields could indicate: Speculative Investments; Large Investments in Affiliates,
Home Office Facilities, or Tax-Exempt Bonds; Significant Interest Payments on
Borrowed Money; Extraordinarily High Investment Expenses.
High yields could indicate: Investments in High-risk Instruments; Extraordinary
Dividend Pmts from Subsidiaries to the Parent.
Ratio 7 – Gross Change in P/H Surplus = Gross Change in PHS / PHS Prior Yr * 100.
Gross Change in PHS = PHS Current – PHS Prior.
If PHS Current = 0 or negative, then result = -99.

NAIC IRIS, “NAIC Insurance Regulatory Information System” – P/C Ratios – SKN
If PHS Current is positive and PHS Prior = 0 or negative, then result = 999.
Range from -10 to +50.
A decrease in PHS is always a concern (thus range set at -10).
High result causes concern as many companies had large PHS increases before they
went insolvent.
Be sure to also check: Ratio 5; unrealized capital gains/losses (large unrealized gains
could mean the stock market is high – causing temporary increase in surplus); Ratio 8;
S/H Dividends; Changes in non-admitted assets; Ratio 4; Accounting changes and
corrections of errors; change in net deferred income tax; change in ownership.
Ratio 8 – Net Change in Adjusted P/H Surplus = Adj PHS / PHS Prior Yr * 100.
Adj PHS = PHS Current – Change in Surplus Notes – Capital Paid-in or Transferred –
Surplus Paid-in or Transferred – PHS Prior Yr.
If PHS Current = 0 or negative, result = -99.
If PHS Current is positive and PHS Prior = 0 or negative, result = 999.
Range from -10 to +25.
Same as Ratio 7 except with adjustments to highlight insurer’s actual operations.
Liquidity Ratios
Ratio 9 – Liabilities to Liquid Assets = Adj Liabilities / Liquid Assets * 100.
Adj Liabilities = Total Liabilities – Liabilities Equal to Deferred Agents’ Balances.
Liquid Assets = Bonds + Stocks, Preferred & Common + Cash, Cash Equivalents &
Short-Term Investments + Receivable for Securities + Inv Inc Due & Accrued – Invs in
Parent, Sub, & Affiliates.
If Liquid Assets = 0 or negative, then result = 999.
Range up to 105.
Many insolvent insurers showed increasing Ratio 9 results in their final years.
Ratio 10 – Gross Agents’ Balances to P/H Surplus = Gross ABs in the Course of Collection /
PHS * 100.
If ABs = 0 or negative, then result = 0.
If ABs is positive and PHS = 0 or negative, then result = 999.
This ratio measures how much solvency depends on an asset that’s not easily converted
to cash.
Range up to 40.
If high, check to see if AB more than 90 days was included in admitted assets. You can
compare the ABs to ¼ the year’s gross WP and reins assumed net of commissions.
Reserve Ratios
Ratio 11 – 1-yr Reserve Development to P/H Surplus = 1-yr Loss Res Dev (from Sch P) /
PHS Prior Year * 100.
If 1-yr Dev is positive and PHS = 0 or negative, then result = 999.
Range up to 20, which is most effective signal of troubled insurers.
If the results show consistent adverse dev and/or Ratio 12 is consistently worse than
Ratio 11, then the insurer may be intentionally understating its reserves.

NAIC IRIS, “NAIC Insurance Regulatory Information System” – P/C Ratios – SKN
Ratio 12 – 2-yr Reserve Development to P/H Surplus = 2-yr Loss Res Dev (from Sch P) /
PHS 2nd Prior Year * 100.
If 2-yr Dev is positive and PHS = 0 or negative, then result = 999.
Range up to 20 … etc … same as Ratio 11.
Ratio 13 – Estimated Current Reserve Deficiency to P/H Surplus = Est Loss & LAE
Reserve Deficiency(Redundancy) / PHS * 100.
Est Loss & LAE Reserves Deficiency = Est Loss & LAE Reserves Required – Loss &
LAE Reserves Current.
Est Loss & LAE Reserves Required = EP Current * Avg Ratio of Reserves to Premium.
Avg Ratio of Reserves to Premium = Avg of Prior Yr and 2nd Prior Yr: Dev Loss &
LAE Reserves to Premium Ratio Prior Yr.
Prior Yr Dev Ratio = (Loss & LAE Reserves Prior + 1-yr Res Dev) / EP Prior.
2nd Prior Yr Dev Ratio = (Loss & LAE Reserves 2nd Prior + 2-yr Res Dev) / EP 2nd
Prior.
Range up to 25.
Significant changes in premium volume can distort this ratio.
 Feldblum (Sch P), "Completing and Using Sch P" (Eighth Edition), CAS Study Note – W
(2003)
Introduction
Purposes of the Schedule
Other Purposes
Experience
Summary Exhibits
The Schedule P Exhibits
Prior Years Rows
Data Types
Part 1 – Current Valuation
Premiums – recorded by CY and frozen.
Loss and Loss Expense Payments
Salvage and Subrogation Received
Calendar Year Reconciliation
Loss Adjustment Expenses
DCC and AAO: Principles – adopted in 1998. DCC = Defense & Cost Containment
for ALAE; AAO = Adjusting and Other for ULAE.
Classification is by type of expense, regardless of whether it relates to specific
claims.
Classification is uniform for all companies.
Expenses divided into two groups: expenses varying w/ amt of loss (DCC) and
those varying w/ # of claims (AAO). (First 2 principles override this one.)
DCC includes legal defense fees, costs of expert witnesses, fees to professionals
working in defense of a claim. AAO includes adjustors’ fees, fees to other
professionals working as adjustors, general claim department overhead.
Declaratory Judgment Actions

Feldblum (Sch P), "Completing and Using Sch P" (Eighth Edition), CAS Study Note – W
Distribution of Adjusting and Other Expenses
Previous Statutory Procedure – distribute AAO as follows: 1) 45% goes to most
recent yr; 2) 5% to next yr; 3) the balance to all years (including most recent) in
proportion to losses paid by AY during the most recent CY. 1) and 2) are to be capped
at 10% of premiums earned in that year.
For med mal, products liab, professional liab, non-proportional reinsurance, this
method allots way too much ULAE to the most recent year, especially when
claims in this line tend to settle much later.
Illustration: Distribution of AAO Expenses
Revised Method – Wendy Johnson’s method can be used.
Illustration: Revised Method of AAO Distribution
Relativities – the cost of maintaining an O/S claim = 1 unit. Closing a claim w/o
payment = 2 units. Settling a claim w/ payment = 3 units. Cost of reporting a claim = 4
units.
Claim History – Part 5 has 3 types of claim counts: 1) closed w/ pay; 2) O/S; 3)
Reported. A triangle of closed w/o pay = reported – O/S at year end – closed w/ pay.
Distribution
Pooling and Reinsurance AAO
Claim Counts
Column 12: # of claims reported – direct & assumed. This contains cts for HO/FO,
P Auto, C Auto, WC, CMP, Other Liability, Med Mal, Auto Phys Dam, Products
Liability.
Column 25: the lines listed above plus remaining primary LOBs show # of claims O/S
(direct & assumed).
Non-proportional reinsurance lines need not show any claim cts.
Average Claim Severities = cumulative losses paid to date divided by cumulative
claims closed w/ pay.
Similar ratios: cumulative losses divided by sum of (claims closed w/ pay and
O/S claims) shows avg incurred claim for non-frivolous claims.
O/S case reserves divided by O/S claims shows avg size of case reserves.
Claims may be counted per claim or per claimant (clarified in Interrogatory 6).
Direct and Assumed vs Ceded – assumed includes proportional business, while ceded
includes ceded non-proportional business. Intercompany pooling agreements split the
claim cts among them. Since there is no simple way to determine # of claims ceded or
assumed for non-proportional reinsurance, there are no claim cts for ceded or net, and
no assumed on non-proportional reinsurance lines.
Loss and Loss Expense Reserves
Retroactive Reinsurance – retroactive reinsurance = the transfer of losses that have
already occurred (not yet settled or not yet reported). Such retro reinsurance doesn’t
effect Sch P. Rather, it’s coded as a write-in contra-liability on page 3, w/ an offsetting
entry on line 24.
Retroactive Reinsurance Accounting Illustration

Feldblum (Sch P), "Completing and Using Sch P" (Eighth Edition), CAS Study Note – W
Anticipated Salvage and Subrogation – this can offset either case losses unpaid or
bulk losses unpaid.
Distributing Unallocated Expense Reserves
Claims Outstanding
Illustration: Outstanding Claim Severity
Loss Ratios
Intercompany Pooling – if the pooling %-age changes, then past history must be restated at
the new %-age level to avoid distortion in ldf patterns. For any AY, the Sch P entries divided
by the pooling %-age should match previous statement’s entries divided by then-current
%-ages.
Occurrence and Claims-Made Business
Tail Coverage
Extended Tail Coverage
RBC Underwriting Risk Charges
Post Codification Tail Coverage Accounting
Loss Date
Excess Statutory Reserves
Structured Settlements – though retroactive reinsurance doesn’t affect Sch P entries,
structured settlements can actually distort Sch P ldf patterns – reducing reported loss factors
and increasing paid loss factors.
Auxiliary Exhibits
Schedule P Triangles
Derived Triangles
Loss Adjustment Expenses
Net vs Direct Experience
Part 3 – Paid Losses
The Prior Years Row – the upper left hand corner always contains 0. This row is meant to
show development on the first listed year’s reserve. This development begins with payments
made in the second listed year. (I think Feldblum has maybe miswrote something. No, it’s Sch
P that’s messed up here.)
Illustration: Completing the Prior Years Row – given the 2019 Schedule P. Take the
prior years row and the 2009 row from 2018 Schedule P. Subtract out losses through
2010 and combine the two rows. Put 000 in the first entry in the 2019 Prior Years Row.
Put in the rest of the entries. For the last entry, add in paid losses from 2019.
Part 2 – Incurred Losses – net (skip IRIS sections)
Updating the Part 2 Exhibits
Updating the Two-Year Lines
Part 4 – Bulk + IBNR Reserves
Part 5 – Claim Counts – Section 1 shows cum claims closed w/ loss pmts. Section 2 shows claims
O/S. Section 3 shows cum reported claims.
Part 6 – Premium Development – separated by (direct + assumed) and (ceded).
Principles – personal lines have premium fixed at inception; commercial policies have
premium depending on activity of insured during policy period; WC premium depends on
payroll; products liability depends on sales during term; retro premiums depend on losses
which aren’t final until settled.
Illustration: Retrospective Rating

Feldblum (Sch P), "Completing and Using Sch P" (Eighth Edition), CAS Study Note – W
Calendar Year, Exposure/Accident Year, and Policy Year
Earned Premium
Incurred Losses
Audiences
Illustration: Data Types
Illustration Part A: Data Types – a retro WC policy issued on 10/1/2003 for a $10K, with a
maximum premium = 150% of SP.
One loss on 3/1/2004 with initial reserve of $8K.
On 12/15/2004, payroll audit calls for an additional $1K premium. SP is now $11K
with max prem = $16.5K.
On 7/1/2005, 1st retro adjustment shows no additional or return premium.
On 11/1/2005, case reserved revised to $25K.
On 7/1/2006, 2nd retro adjustment calls for additional premium of $5.5K (to the max).
On 8/1/2006, loss is settled for $20K.
Calendar Year Accounting
CY incurred losses: 2003 - $0; 2004 - $8K; 2005 - $17K; 2006 - (-$5K).
CY EP = WP – change in UPRs + changes in EBUB PRs and accrued retrospective
premium reserve. On 12/31/2003, ¼ of the policy has expired, so the year-end UPR is
$7.5K. CY 2003 EP = $2.5K. Rest is earned in 2004. The audit premium of $1K is
recorded as 2004 EP. The retro premium of $5.5K is recorded as 2006 EP.
Policy Year Accounting
PY incurred losses allocated to PY 2003 always. @2003 = $0; @2004 = $8K;
@2005 = $25K; @2006 = $20K.
PY 2003 EP: @2003 = $2.5K; @2004 = $11K; @2006 = $16.5K.
Accident/Exposure Year Accounting
AY 2003 incurred losses = 0. AY 2004 incurred losses: @2004 = $8K; @2005 = $25K;
@2006 = $20K.
Exposure year EP are similar. @2003: EY 2003 EP = $2.5K.
@8/30/2004: EY 2003 EP = $2.5K; EY 2004 EP = $7.5K.
@12/31/2004: audit is distributed over the policy term. (3/4 in 2004 and 1/4 in 2003).
This results in: EY 2003 EP = $2750; EY 2004 EP = $8250.
@12/31/2006: retro premiums are allocated in proportion to the coverage period. $1375
goes to EY 2003 and $4125 goes to 2004.
Accounting for Exposure Year Premiums
Individual exposure years (rows) show cumulative EPs, which include: collected
premiums; billed but uncollected premiums; EBUB premiums; accrued retro premiums.
The Prior Years row shows incremental CY changes to the EP for prior exposure years.
The last column shows the distribution of current CY’s EP among exposure years.
Last row shows CY EPs from Sch P Part 1.
Illustration Part B: Actuarial Estimates – example A with premium reserves being used.
In 2003, actuary estimates payroll audit will add $2K of premium.
In 2004, bulk reserves = $6K and accrued retrospective premium reserve of $4K.

Feldblum (Sch P), "Completing and Using Sch P" (Eighth Edition), CAS Study Note – W
In 2005, accrued retrospective premium reserve changed to $12K.
Note: these reserves are on a bulk basis, not per policy. Also, there is an original $10K
deposit premium.
Estimated Payroll Audit – At 2003, estimated EP for policy = $10K + 2K = $12K. So
the EP for 2003 = $3K. The $9K is charged to 2004 in 2004. However, the payroll
audit was -$1K lower than expected. Distribute this among 2003 and 2004.
Estimated Retrospective Premiums
CY: bulk reserves for losses and premiums assigned to 2004.
PY: bulk reserves for both are assigned to 2003.
AY: bulk reserves for losses assigned to 2004.
Exposure Year: ¼ of premium reserves assigned to 2003 and ¾ to 2004.
In 2005, the change in bulk reserve premiums is assigned to CY 2005, PY 2003, and for
exposure year: ¼ to 2003 and ¾ to 2004. Same allotment for the reduction in 2006.
Completing the Part 6 Exhibits
Part 7 – Loss Sensitive Contracts
RBC Underwriting Risk Charges
Premium Sensitivity
Loss Reserve Adequacy and RBC Offsets
Definition of Loss-Sensitive Contracts
Part 7 Historical Exhibits
Illustration – Premium Sensitivity
Part 7 Data
Initial Deposits
Quantifying the Sensitivity
Reported Losses and Billed Premium
Premium Billing Lags
Prior Years Row
Reinsurance Experience
Prospective vs Retroactive Reinsurance
Reinsurance and RBC
Reinsurance and Surplus Relief
Schedule P Interrogatories
Reserve Margins
Reserve Margin Controversy
Statement of Actuarial Opinion
Under-Reserving
Actuarial Opinion
Scope of the Statement
Appendix A: Accounting for Audits and Retrospective Adjustments
General Principles
A. Accounting Methods
B. Statutory vs Tax Accounting
C. Financial Statement Reporting Procedures
Illustration – Income Statement and Balance Sheet
D. Non-admitted Asset

Feldblum (Sch P), "Completing and Using Sch P" (Eighth Edition), CAS Study Note – W
Accrued Retrospective Premium Reserves
Statutory Accounting Principles
 Feldblum (IEE), "The Ins Expense Exhibit and the Allocation of Investment Income" – W
(1997)
Introduction
The Structure of the Insurance Expense Exhibit
Part I – Allocation to Expense Groups – divides expenses among: expense classification
(rows) vs. expense groups (columns: loss supervision and collection expenses;
acquisition & field expenses; general license and fees; taxes expenses; investment
expenses). The middle 3 expense groups are “other U/W-ing expenses”.
Part II – Allocation to LOB Net of Reinsurance
Part III – Allocation to Lines of Direct Business Written – similar to Part II, except
investment income is not included.
IEE Part II: Allocation to Lines of Business Net of Reinsurance
Allocation of Investment Income by Line of Business – starting in 1992, the IEE now
allocates using the same allocation in the NAIC “Profitability by Line by State” report.
Conceptual Level
1. Investment income is allocated to each LOB in proportion to the investable funds
associated w/ each LOB. Investable funds are: funds attributable to insurance
transactions and fund attributable to capital & surplus.
2. Funds attributable to insurance transactions are: loss reserves + UPRs – prepaid
expenses – uncollected premiums.
3. Capital & surplus are allocated to LOB in proportion to total reserves + EP for the
year.
Component Level
1. The following balance sheet items use the average of the current year-end and the
prior year-end: Net loss & LAE reserves; Net UPRs; Net ABs; P/H’s surplus.
2. Prepaid expenses = commission & brokerage expenses incurred + taxes, license, fees
incurred + other acquisition, field supervision, and collection expenses incurred + ½ of
general expenses incurred.
3. Net investment gain (loss) = net II earned and net realized capital gains (losses). It
does not contain unrealized gains.
The Allocation
A. Allocate company’s mean surplus to LOB as described in illustration below.
B. Determine the company’s overall “investment gain ratio” = net investment gain /
[Mean net loss & LAE reserves + mean net UPRs – mean net ABs + mean P/H’s
surplus].
C. The “investment gain on funds attributable to insurance transactions” = investment
gain ratio times funds attributable to insurance transactions; where the latter term =
mean net loss & LAE reserves + mean net UPRs * [1 – (prepaid expenses / WP)] –
mean net ABs.
D. The “investment attributable to capital & surplus” = the total investment gain for that
LOB – the “investment gain on funds attributable to insurance transactions.” Where
total investment gain = investment gain ratio * investable funds associated w/ that LOB;

Feldblum (IEE), "The Ins Expense Exhibit and the Allocation of Investment Income" – W
and the latter term = mean net loss & LAE reserves + mean net UPRs – mean net ABs +
allocated P/H’s Surplus.
Data Level
The 1992 Revisions
Profit or Loss – all columns are pre-federal income tax, regardless of caption.
Pre-tax profit (loss) excluding all invest gain = EP + Other Income less Other Expenses – P/H
dividends – Incurred Loss – DCC Incurred – AAO incurred – commissions/brokerage –
taxes/fees – Other acquisitions – General expenses.
Profit (Loss) excluding investment gain attributable to capital & surplus = Pre-tax profit (loss)
… + Investment gain on funds attributable to insurance transactions.
Total profit (loss) = last thing + Investment gain attributable to capital & surplus.
Allocation Procedures: An Illustration – example features a commercial lines insurer that writes
only WC and Other Liab. All amts are in millions.
Allocation of Surplus to Lines of Business – stat surplus (page 3) = $500 at 1995 and $700 at
1996. The following data comes from 1995 and 1996 IEE:
WC
Other Liab
95
96
95
96
ABs
35
45
10
10
EP
350 450 200 200
Loss & LAE Reserves
1400 1700 600 600
UPRs
75 125 100 100
WP
400 500 200 200
Commission & brokerage
40
50
25
30
Taxes, licenses & fees
8
10
5
5
Other acquisition expenses
8
10
5
5
General expenses
40
60
20
20
IEE II allocation procedure requires that we allocate the mean surplus to LOB in
proportion to: mean net loss (& LAE) reserves + mean net UPRs + EP for the year.
You don’t adjust UPRs for ABs or for prepaid expenses.
Mean surplus = $600. Mean loss reserves = 1550 for WC; 600 for Other. Mean UPRs
= 100 for WC; 100 for Other. EP = 450 for WC; 200 for Other. Total = 2100 for WC;
900 for Other. This allocates $420 of surplus to WC and $180 to Other.
Investment Gain Ratio – determined overall.
Other info to consider:
95 96
Net investment income 250 250
Realized capital gains
100 50
Unrealized capital gains 100 150
P/Hs Surplus
500 700
Net investment gain = 250 + 50 = 300. Mean net ABs = 40 + 10 = 50. Investment gain
ratio = 300 / [2150 + 200 – 50 + 600] = 10.34%.

Feldblum (IEE), "The Ins Expense Exhibit and the Allocation of Investment Income" – W
Prepaid (“Acquisition”) Expenses – determined by LOB.
Prepaid expenses = [50 + 10 + 10 + ½ * 60] = $100 for WC; [30 + 5 + 5 + ½ * 20] =
$50 for Other.
Prepaid expense ratios = prepaid expenses / WP, not EP.
Investment gain on funds attributable to insurance transactions – LOB – Column 18.
Factor = 1 – (prepaid expenses / WP) = 80% for WC and 75% for Other. Funds
attributable to insurance transactions = 1550 + 100 * 80% - 40 = $1590 for WC;
600 + 100 * 75% - 10 = $665 for Other.
Investment gain …. = 10.34% times these amts = $165 for WC; $69 for Other.
Investment gain attributable to capital and surplus – LOB – Column 20.
Investable funds = 1550 + 100 – 40 + 420 = $2030 for WC; 600 + 100 – 10 + 180 =
$870 for Other. Total investment gain = 10.34% of those amts = $210 for WC; and $90
for Other. Investment gain attributable to capital & surplus = 210 – 165 = $45 for WC;
and 90 – 69 = $21 for Other.
Part III – Allocation to Lines of Direct Business Written
2 differences between Part III and Part II:
Most AS exhs show net experience, so there are few direct cross-checks from Part III.
Since investment income relates to net experience, those columns are not in Part III.
Profit or Loss
The Measurement of Profitability
Prospective versus Retrospective – pricing is mainly a prospective task, while the IEE is a
retrospective measure of insurance profitability.
Allocation of Surplus
Reserve Run-Off versus New Business
Insurance Returns and Investment Returns
Perspectives on the IEE Procedures
Appendix A: The Part II Entries
Premiums
Dividends
Losses and LAE
Agents’ Balances
Underwriting Expenses
Appendix B: The Part III Entries
 NAIC APPM, Preamble – SK
I. Accounting Practices and Procedures Promulgated by the NAIC (1-5)
II. Background (6-21)
A. An Accounting Environment for Insurance Companies (6-7)
B. Statutory Accounting Principles (SAP) (8-9)
C. Comparison Of GAAP and SAP (10-11)
D. Purpose of Codification (12-14)
E. History of Codification (15-19)
F. Scope of Project (20-21)
III. Statutory Accounting Principles Statement of Concepts (22-38)

NAIC SSAP 62, "Property and Casualty Reinsurance" – SK (paragraphs 1-71)
Purpose of Statement of Concepts for Statutory Accounting Principles (22-26)
Objectives of Statutory Financial Reporting (27-28)
Concepts (29-36)
Conservatism (29-30)
Consistency (31)
Recognition (32-36)
Conclusion (37-38)
IV. Statutory Hierarchy (39-40)
V. Statements of Statutory Accounting Principles (41-43)
VI. Materiality (44-49)
VII. Relationship to GAAP (50)
VIII. Relationship to Developments within NAIC (51-53)
IX. Permitted Accounting Practices (54-57)
X. Financial Statements (58-61)
A. Annual Financial Statement (58-59)
B. Interim Financial Statements (60-61)
 NAIC SSAP 53, "Property Casualty Contracts-Premiums" – SK
Scope of Statement (1-2)
Summary Conclusion (3-17)
Earned but Unbilled Premium (9-12)
Advance Premiums (13)
Premium Deposits on Perpetual Fire Deposits (14)
Premium Deficiency Reserve (15-16)
Disclosures (17)
 NAIC SSAP 62, "Property and Casualty Reinsurance" – SK (paragraphs 1-71)
Scope of Statement (1)
Summary Conclusion (2-71)
General (2-5)
Characteristics of Reinsurance Agreements (6-7)
Required Terms for Reinsurance Agreements (8)
Reinsurance Contracts Must Include Transfer of Risk (9-16)
Accounting for Reinsurance (17-24)
Accounting for Prospective Reinsurance Agreements (25-26)
Accounting for Retroactive Reinsurance Agreements (27-33)
Deposit Accounting (34)
Assumed Reinsurance (35-41)
Ceded Reinsurance (42-46)
Adjustable Features/Retrospective Rating (47-51)
Commission Adjustments (48)
Premium Adjustments (49)
Adjustments in the Amount of Coverage (50)
Impairment (51)

NAIC SSAP 53, "Property Casualty Contracts-Premiums" – SK
Commissions (52-53)
Provision for Reinsurance (54-55)
Disputed Items (56-57)
Uncollectible Reinsurance (58)
Commutations (59-62)
National Flood Insurance Program (63-66)
Disclosures (67-71 or 73?)
 NAIC SSAP 65, "Property and Casualty Contracts" – SK (paragraphs 1-45)
Scope of Statement (1-2)
Summary Conclusion (3-45)
Claims Made Policies (4-9)
Discounting (10-16)
Structured Settlements (17-20)
Policies with Coverage Periods Equal to or in Excess of Thirteen Months (21-33)
High Deductible Policies (34-39)
Asbestos and Environmental Exposures (40-43)
Excess Statutory Reserve (44)
Policyholder Dividends (45)