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Question: an insurance company starts on 12312017 with 600000 in cash...

Question details

An insurance company starts on 12/31/2017 with $600,000 in cash.  On 1/1/2018 it sells a one year policy (Policy A) for $250,000.  On 4/1/2018 it sells a one year policy (Policy B) for 200,000 (note: this means that three-quarters of Policy B will have “earned out” by the end of 2018.  On 1/1/2019 it sells Policy C for $200,000.  It stops writing policies after selling Policy C.

Investment Income

The company earns $30,000 of investment income in 2018.  It earns $40,000 of investment income in 2019.

Expenses

In 2018, $90,000 of underwriting expenses are incurred.  In 2019, $50,000 of underwriting expenses are incurred.

Losses

On 5/1/18, a $10,000 claim on Policy A is paid.

On 9/1/18, a $12,000 claim on Policy B is paid.

At 12/31/18, there case reserves of $25,000 for Policy A and $15,000 for Policy B.  There is IBNR of $100,000 for Policy A and $95,000 for Policy B.

On 3/1/19, a $22,000 claim is paid for Policy A.  

On 6/1/19, a $21,000 claim is paid for Policy B.

On 7/1/19 a $26,000 claim is paid for Policy C.

On 12/31/19, there case reserves and IBNR of $15,000 for Policy A, $40,000 for Policy B, and $90,000 for Policy C.

1. Calculate total incurred loss and net income or loss for the 2018 and 2019 calendar years.

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