Free CAS Exam 6-U.S. (Regulation and Financial Reporting) Insurer Taxation & Reinsurance Accounting Practice Questions
Practice 115 free Insurer Taxation & Reinsurance Accounting questions for CAS Exam 6-U.S. (Regulation and Financial Reporting).
Sample Questions
Question 1
Easy
The provision for reinsurance calculated in Schedule F of the P&C Annual Statement is best described as:
Solution
D is correct. The provision for reinsurance is a statutory liability that reduces surplus. It captures the collectibility risk of ceded balances by charging for recoverables from unauthorized reinsurers (unless collateralized) and for authorized-reinsurer balances that are overdue, functioning as a penalty for weak security and slow payment.
Question 2
Medium
An insurer carries undiscounted statutory unpaid losses of $8,000,000 for a line of business. The applicable IRS discount factor for that line and accident year is 91.25%. What is the tax-basis discounted loss reserve?
Solution
C is correct. The tax-basis reserve equals the undiscounted reserve multiplied by the IRS discount factor: . The $700,000 difference between the statutory and tax reserves accelerates taxable income relative to the statutory underwriting result.
Question 3
Hard
A cedant's contract fails the risk transfer test and must use deposit accounting. It pays a $40M premium recorded as a deposit asset. During the year the reinsurer reimburses $12M of paid losses, and the cedant accrues $2M of imputed interest income on the deposit. What deposit asset does the cedant report at year end?
Solution
D is correct. Under deposit accounting the payment is not ceded premium but a deposit asset. Start with the $40M deposit, reduce it by the $12M of reimbursed paid losses, and add the $2M of imputed interest income: No ceded premium or ceded losses flow through underwriting results; only the interest touches income, so the statements do not reflect any risk-transfer relief.