CAS Exam 6C Spring 2019, Question 21
Study guide: Exam 6C
The following information is available for a federally-regulated property and casualty insurance company as at December 31, 2018. All amounts are in thousands of dollars ($000s).
Statement of Financial Position
| Item | Current Year | Prior Year |
|---|---|---|
| Cash | 10,000 | 8,000 |
| Bonds and debentures | 45,000 | 50,000 |
| Common shares | 3,000 | 2,500 |
| Real estate | 15,000 | 20,000 |
| Agents and brokers receivables | 1,000 | 1,250 |
| Unearned premiums recoverable | 11,500 | 12,500 |
| Unpaid claim and adjustment expenses recoverable | ? | ? |
| Total assets | 120,000 | 112,500 |
| Gross unpaid claims and adjustment expenses | 45,000 | 42,500 |
| Equity | 40,000 | 37,500 |
Statement of Income
| Item | Current Year | Prior Year |
|---|---|---|
| Net premiums written | 45,000 | 47,500 |
| Decrease (increase) in net unearned premiums | 1,500 | 1,250 |
| Net claims and adjustment expenses | 40,000 | 37,500 |
| Net acquisition expenses | 7,500 | 7,500 |
| General expenses | 3,500 | 4,000 |
| Investment income | 7,500 | 5,000 |
| Realized gains (losses) | (1,000) | 500 |
| Investment expenses | 800 | 600 |
| Total income taxes | 1,000 | 1,250 |
The net leverage ratio at the end of the current year is 250%.
All of the company's reinsurance is placed with an unregistered reinsurer without collateral.
Part a (1.75 points)
Calculate each of the following ratios as at December 31, 2018:
- i. Investment yield
- ii. Return on equity
- iii. Return on assets
- iv. Net underwriting leverage ratio
Part b (1 point)
Based on three ratios calculated in part a. above or any information given, comment on the company's financial health.
Part c (0.75 points)
Calculate the unpaid claims and adjustment expenses recoverable at the end of 2018.
Answer this question and see the worked solution