CAS Exam 6C Fall 2017, Question 14
Study guide: Exam 6C
The following information is available for a property and casualty insurance company as at December 31, 2016. All amounts are in thousands of dollars ($000s).
Cumulative Gross Paid Losses
| Accident Year | 12 Months of Development | 24 Months of Development | 36 Months of Development |
|---|---|---|---|
| 2014 | 40,000 | 60,000 | 75,000 |
| 2015 | 35,000 | 50,000 | |
| 2016 | 39,000 |
Total Gross Unpaid Claims
| Accident Year | 12 Months of Development | 24 Months of Development | 36 Months of Development |
|---|---|---|---|
| 2014 | 39,000 | 20,000 | 0 |
| 2015 | 40,000 | 16,000 | |
| 2016 | 41,000 |
The cumulative accident year payment pattern is as follows:
| Age (months) | Cumulative Percentage Paid |
|---|---|
| 12 | 50% |
| 24 | 75% |
| 36 | 100% |
| Item | 2016 | 2015 |
|---|---|---|
| Gross unearned premium | 90,000 | 80,000 |
| Gross premium written | 100,000 | n/a |
| Discount rate | 3% | 3% |
| Margin for adverse deviations (MfAD) for claims development | 10% | 10% |
| MfAD for recovery from reinsurance ceded | 1% | 1% |
| MfAD for investment return rates | 0.25% | 0.25% |
| Net claim liabilities | ? | 47,876 |
| Premium taxes, net commissions and general expenses | 15,000 | 15,000 |
| Interest income from investments | 100 | 125 |
| Realized gains (losses) from Fair Value Option assets | 200 | 225 |
| Unrealized gains (loss) from Fair Value Option assets | 250 | 275 |
| Realized gains (losses) from Available For Sale assets | 300 | 325 |
| Unrealized gains (losses) from Available For Sale assets | 350 | 375 |
| Realized gains (losses) from Held to Maturity assets | 400 | 425 |
| Unrealized gains (losses) from Held to Maturity assets | 450 | 475 |
| Investment expenses | 50 | 50 |
- Since its inception, the company has had a quota share treaty with a 25% cession rate. There is no other reinsurance.
- Assume that there are no income taxes and no premium deficiency.
Part a (3.75 points)
Calculate the company's net income and total comprehensive income for 2016.
Part b (0.5 points)
Contrast the use of fair value and historical cost to value an asset.
No current syllabus covers this question; it is kept for the record.
Answer this question and see the worked solution
Concepts tested
- Comprehensive Income
- Financial Asset Classification
- Net Income
- Margin for Adverse Deviations
- Loss Reserve Discounting