Odomirok.12-5yr

Reading: Financial Reporting Through the Lens of a Property/Casualty Actuary - Chapter 12 - Five-Year Historical Data Exhibit

Author: Kathleen C. Odomirok, FCAS, MAAA, Liam M. McFarlane, FCIA, FCAS, Gareth L. Kennedy, ACAS, MAAA, Justin J. Brenden, FCAS, MAAA, EY

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BA Quick-Summary: Five-Year Historical Data Exhibit The Five-Year Historical Data exhibit summarizes 5 years of key financial statistics from past Annual Statements aiding in trend analysis and health evaluation of the company.. (Most other annual statement exhibits show only 1 or 2 years of data.) It includes: → written premiums, income statements information, balance sheet information, RBC data, operating percentages, loss development Example, Fictitious Insurance Company saw a shift from liability to property lines, consistent net income, and favorable reserve developments, although it experienced an underwriting loss in 2018 likely due to catastrophe events.

Study Tips

Study the examiner's report solution to (2018.Spring #13) very carefully. It's a good question. Information from Odomirok.13 may also be useful here. It's valuable to spend up to 2 hours on this chapter. The RBC calculation uses GWP from the Five Year Historical Exhibit in computing the excess growth factor for R₄ and R₅. Click R₅ excess growth factor for an example.

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Based on past exams, the main things you need to know (in rough order of importance) are:

• how to use general knowledge to interpret information on the 5-year historical exhibit

reference	part (a)	part (b)	part (c)	part (d)
E (2018.Spring #13)	financial health - area of concern #1	financial health - area of concern #2	financial health - area of concern #3	financial health - area of concern #4

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In Plain English!

The 2018.Spring exam question doesn't require you to have any special knowledge concerning the 5-Year Historical Data Exhibit. This question is testing a broader understanding of how to use financial statement data to understand a company.

The syllabus provides online examples of annual statements for Travelers and Liberty Mutual, but the Liberty Mutual example didn't include this exhibit. Check the Travelers annual statement for a real-life example of the 5-Year Historical Data Exhibit. The example of Fictitious Insurance Company in the appendices of Odomirok also provides an example.

The way I think of this exhibit is that it pulls together information from many other exhibits and shows it all in 1 place, plus it shows you 5 years. It's a very useful exhibit to get an overview of the company.

Here are some examples of the types of data that are shown:

• premiums - gross & net
• balance sheet information - assets, liabilities...
• income statement information - U/W gain, investment gain,...
• operating ratios
• RBC - total capital & ACL (Authorized Control Level Capital)

Something Interesting: The 5-year historical exhibit shows a line-of-business breakout by liability (long-tail) versus property (short-tail).

Implication: If there has been a mix-shift from long-tail to short-tail or vice-versa, this could have implications for how you interpret reserves. Long-tail lines have higher reserves and settle more slowly. Recall part (b) the following exam problem from Feldblum.Surplus:

E (2015.Spring #12)

You were asked to identify an annual statement exhibit to support the actuary's assertion that the reserve increase was not due to prior inadequacy. One possible answer is a mix-shift from short-tail to long-tail lines. This would cause the reserves to increase because long-tail lines have higher reserves (not necessarily because of prior AY inadequacy.)

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