Insurance Risk Management

Problem Set #3: Measuring Financial Performance and RBC

Instructions

• Please submit all work via Excel spreadsheets. Clearly articulate all assumptions and identify each key cell used in your calculations.

Overview for Questions 1-4

The Chief Financial Officer for Extra Cautious Insurance Company, has engaged your assistance in pulling together the draft financial statement for the calendar year that just ended, and performing some risk analysis based on that statement.

She provides you with the following partial information:

Cash Flows Full Year 2023:

Premiums	150,000
Claims	90,000
Commissions	4,500
Acquisition Expenses	7,500
Other Expenses	500

Balance Sheet (Assets, Liabilities and Capital) for 2022 and 2023:

	Actual YE 2022	Estimated YE 2023
Cash & Invested Assets	135,000	???
Deferred & Uncollected Premium	5,600	6,200
Investment Income Due and Accrued	900	700
Total Assets	141,500	???
Claim Reserves	90,000	89,000
Unearned Premium Reserve	5,000	4,700
Unearned Investment Income	325	300
Commissions Payable	300	350
Total Liabilities	95,625	94,350

In the questions that follow we will develop the incurred income statement and complete the balance sheeton a Statutory basis.

Questions

1. Calculate the following income statement items for 2023:
   1. (3 points) Earned premium
   2. (3 Points) Incurred claims
   3. (3 points) Total incurred expenses (including commissions)