CIC- Insurance Company Operations
Exam Questions with 100% Correct
Answers
Describe the Loss Development Factor and explain its use - Answer-factors applied to a
current valuation of losses to determine an estimate of ultimate losses; these factors are
calculated by comparing the period-to-period changes in values of loss reserves, under
the assumption that current losses will be paid according to the same pattern as prior
losses at similar states of development (history will repeat itself); loss development
factors are frequently calculated separately for incurred losses, paid losses and claims
counts.
Describe the ways in which a company may be structured and identify the
characteristics of each - Answer-1. Stock Insurance Company
• Capitalization
- owned by investors
- objective to make profit for stockholders
• Access to capital markets
• Mergers and Acquisitions (M&A)
- less difficult
• Reach is greater with regard to brand
• Primary responsibility is to stockholders not policyholders
• Pressure on topline growth at the expense of profit
2. Mutual insurance company
• Less pressure on the day to day results
- owned by policyholders
• Growth or expansion of company
• Mergers and Acquisitions - more difficult
• There are no stockholders
• Often seen as very stable
• Longevity in the market
3. Reciprocal
• Insureds are also the insurers
• Often specific for niche or single line of business
• Managed by Attorney-in-Fact
• Premium deposits
• Ease of entry to market
• Less profit pressure
• Easier to capitalize - spread out the cost of assets that have a long lifespan over a
period of time
• May be more difficult to raise capital
,- regulation by states
- subscribers insure one another
purpose of the board of directors - Answer-to make certain the investors and/or owners
interests are protected
3 obligations of board members - Answer-- duty of care (being prudent, ask questions,
use due diligence)
- duty of loyalty (keeping interests of company above their own)
- duty of obedience (following bylaws, stated purpose of company, laws)
5 things to consider when selecting board members - Answer-- dependent on size and
type of organization
- expertise required/needed
- nominating committee will vet - stockholders/ policyholders/subscribers elect
- more formal process in larger corporations
- less formal in smaller organization (may not all be truly independent in nature, may
provide actual decisions of how the organization is run)
4 types of committees to be considered in a board of directors - Answer-- audit
- nominating
- governance
- finance (investment and compensation)
what is the learning curve for new board and committee members - Answer--
accounting processes (STAT vs GAAP)
- industry (pricing of the product if they aren't from the insurance industry)
investment strategy of the board of directors - Answer-- board has to work with the
executive team to make investments
- required to hold investment grade securities
- investment income is separate from income earned from underwriting
- stocks
- bonds
- real estate
- other
3 investment factors for consideration - Answer-1. portfolio must comply with
requirements/expectations by the NAIC (national association of insurance
commissioners), DOI's (departments of insurance), and rating agencies
2. must ladder maturities in accordance with expected need for funds to pay claims
3. affected by reinsurance
company culture - Answer-- its personality
, 1. values statement
- principles and ethics the company adheres to regardless
- guide the behavior of the company, leadership, and employees
- must be communicated in writing
2. vision statement
- declaration of the company long range goals (where the company is going and how is
the company going to get there)
- foundation for the strategic plan and affects decision making
- focuses efforts on strategic opportunities
3. mission statement
- short statement of the company core purpose and overall goal (why the company does
what it does)
- identifies the goal of its operations (markets served, products, geographic operation)
- communicates purpose and direction (employees, customers, venders, stakeholders)
two approaches to developing company culture - Answer-active approach
- leadership makes it happen
- intentional
- clearly defined values provide a framework for management and frontline employee
decision making
passive approach
- happens over time by employees observing behavior and values
- is based on the behavior of management, which does not necessarily reflect the
written values
branding
differentiation
positioning - Answer-- the process of composing messages that incorporate the
company vision and mission statements to create the impression and perceptions that
people will have about the organization
- what a company offers or does that set it apart from other companies (ex. low cost
provider, exceptional customer service, technology leader)
- how the company compares to other companies within the insurance industry
human resource considerations - Answer-1. insurance company employees
- offers the greatest degree of control with employee status (establish practices and
customize procedures)
Exam Questions with 100% Correct
Answers
Describe the Loss Development Factor and explain its use - Answer-factors applied to a
current valuation of losses to determine an estimate of ultimate losses; these factors are
calculated by comparing the period-to-period changes in values of loss reserves, under
the assumption that current losses will be paid according to the same pattern as prior
losses at similar states of development (history will repeat itself); loss development
factors are frequently calculated separately for incurred losses, paid losses and claims
counts.
Describe the ways in which a company may be structured and identify the
characteristics of each - Answer-1. Stock Insurance Company
• Capitalization
- owned by investors
- objective to make profit for stockholders
• Access to capital markets
• Mergers and Acquisitions (M&A)
- less difficult
• Reach is greater with regard to brand
• Primary responsibility is to stockholders not policyholders
• Pressure on topline growth at the expense of profit
2. Mutual insurance company
• Less pressure on the day to day results
- owned by policyholders
• Growth or expansion of company
• Mergers and Acquisitions - more difficult
• There are no stockholders
• Often seen as very stable
• Longevity in the market
3. Reciprocal
• Insureds are also the insurers
• Often specific for niche or single line of business
• Managed by Attorney-in-Fact
• Premium deposits
• Ease of entry to market
• Less profit pressure
• Easier to capitalize - spread out the cost of assets that have a long lifespan over a
period of time
• May be more difficult to raise capital
,- regulation by states
- subscribers insure one another
purpose of the board of directors - Answer-to make certain the investors and/or owners
interests are protected
3 obligations of board members - Answer-- duty of care (being prudent, ask questions,
use due diligence)
- duty of loyalty (keeping interests of company above their own)
- duty of obedience (following bylaws, stated purpose of company, laws)
5 things to consider when selecting board members - Answer-- dependent on size and
type of organization
- expertise required/needed
- nominating committee will vet - stockholders/ policyholders/subscribers elect
- more formal process in larger corporations
- less formal in smaller organization (may not all be truly independent in nature, may
provide actual decisions of how the organization is run)
4 types of committees to be considered in a board of directors - Answer-- audit
- nominating
- governance
- finance (investment and compensation)
what is the learning curve for new board and committee members - Answer--
accounting processes (STAT vs GAAP)
- industry (pricing of the product if they aren't from the insurance industry)
investment strategy of the board of directors - Answer-- board has to work with the
executive team to make investments
- required to hold investment grade securities
- investment income is separate from income earned from underwriting
- stocks
- bonds
- real estate
- other
3 investment factors for consideration - Answer-1. portfolio must comply with
requirements/expectations by the NAIC (national association of insurance
commissioners), DOI's (departments of insurance), and rating agencies
2. must ladder maturities in accordance with expected need for funds to pay claims
3. affected by reinsurance
company culture - Answer-- its personality
, 1. values statement
- principles and ethics the company adheres to regardless
- guide the behavior of the company, leadership, and employees
- must be communicated in writing
2. vision statement
- declaration of the company long range goals (where the company is going and how is
the company going to get there)
- foundation for the strategic plan and affects decision making
- focuses efforts on strategic opportunities
3. mission statement
- short statement of the company core purpose and overall goal (why the company does
what it does)
- identifies the goal of its operations (markets served, products, geographic operation)
- communicates purpose and direction (employees, customers, venders, stakeholders)
two approaches to developing company culture - Answer-active approach
- leadership makes it happen
- intentional
- clearly defined values provide a framework for management and frontline employee
decision making
passive approach
- happens over time by employees observing behavior and values
- is based on the behavior of management, which does not necessarily reflect the
written values
branding
differentiation
positioning - Answer-- the process of composing messages that incorporate the
company vision and mission statements to create the impression and perceptions that
people will have about the organization
- what a company offers or does that set it apart from other companies (ex. low cost
provider, exceptional customer service, technology leader)
- how the company compares to other companies within the insurance industry
human resource considerations - Answer-1. insurance company employees
- offers the greatest degree of control with employee status (establish practices and
customize procedures)
