Insurance FIG Modeling Tests: What Interviewers Expect and How to Prepare

Insurance FIG Modeling Tests: A Practical Guide

An insurance financial model is a compact set of schedules that translates policy mechanics and regulation into earnings, cash, and capital under stress. In financial institutions group interviews focused on banks and insurers, the model must reflect how capital rules and accounting shape cash a parent can upstream. In the United States, Risk-Based Capital is the solvency yardstick. Total Adjusted Capital divided by Authorized Control Level RBC produces action thresholds that gate dividends and deal capacity.

What Interviewers Actually Test

Interviewers want to see whether you can turn insurance products and accounting into cash generation after regulatory friction. The point is not a polished three-statement model. It is a clean bridge across statutory, GAAP or IFRS, and cash, with assumptions you can defend. Your answers should reconcile to capital rules and accounting changes, include a clear dividend test, and show a sensitivity that could move a board.

What these tests are and are not

Applied mechanics: Present an applied view of operating mechanics and capital constraints. Show distributable cash after buffers, not only GAAP EPS.
Judgment over speed: These are not keyboard contests. If your earning pattern or dividend logic is offside, speed will not save you.
Real-world judgment: They check judgment on reserving, pricing cycles, and reinsurance. One good sensitivity beats two places of false precision.

Assignments by Subsector: What to Build Fast

P&C carrier

Earning bridge: Build the written-to-earned bridge and unearned premium reserve roll-forward.
Loss modeling: Model losses via a loss ratio with catastrophe sensitivity. Include a reserve roll-forward and, if asked, a simple triangle.
Expense split: Split acquisition and G&A in the expense ratio. Combine with losses into a combined ratio, using AM Best’s 2023 combined ratio of 103.7% as context, not a plug.
Investment on float: Add investment income on float. Note that higher rates lift yield but can drive AOCI marks under GAAP.
Capital generation: Build statutory capital generation with TAC, ACL RBC, RBC ratio, and action levels. Output dividend capacity consistent with buffers. The fast impact is parent cash timing and rating headroom.

Life insurer

Product cohorts: Forecast premiums, benefits, and reserves by product or cohort under LDTI and IFRS 17 concepts where relevant.
LDTI mechanics: Under LDTI, update discount rates to AOCI, amortize DAC on a constant basis, and reflect assumption unlocking in liabilities.
IFRS 17 optics: Under IFRS 17, insurance revenue excludes investment components. CSM release and risk adjustment drive the service result.
ALM and dividends: Show asset-liability management sensitivities to rate shocks. Gate dividends via RBC or Solvency II. The fast impact is spread stability on earnings and capital intensity on cash.

Reinsurer

Program design: Build quota share with ceded premium, ceding and profit commission, and net losses. Build XoL with layers, attachments, occurrence limits, and reinstatements.
Cat volatility: Add realistic cat volatility via exceedance curves or discrete scenarios. Note rate context from 1/1/2024 renewals.
Credit and collateral: Reflect counterparty credit and collateral on recoverables. The fast impact is book value volatility and ROE dispersion.

Insurance brokers and MGAs

Revenue linkage: Link fee or commission income to written premiums, rate, retention, and new business. Model producer comp and bonuses.
Cash timing: Show working capital dynamics, including trust account timing.
Roll-ups: Add roll-ups with earnouts, debt capacity, and integration costs.
MGA economics: For MGAs, build profit commission and loss participation. Flag whether they take underwriting risk. The fast impact is cash conversion timing and leverage capacity.

Core Mechanics You Must Nail

Premiums and earning patterns

Written vs earned: Recognize policy inception vs service over time and reconcile to unearned premiums.
Growth drivers: Use retention, exposure, and rate to forecast written premium with a three-part bridge. Separate rate from exposure for revenue credibility.

Losses, reserves, and triangles

Cash vs earnings: Separate incurred from paid; cash follows paid, earnings follow incurred plus reserve change.
Reserve roll-forward: Begin reserves plus current accident year incurred plus prior-year development minus paid equals ending reserves. Adverse development hits earnings.
Triangles: If asked, run a link ratio with a reasonable tail. Keep it auditable to stabilize surplus.

Expenses and acquisition costs

Expense classification: Distinguish deferrable acquisition costs from non-deferred G&A.
LDTI vs IFRS: Under LDTI, use constant-level DAC amortization. Under IFRS 17, acquisition cash flows adjust the CSM for profitable groups.

Investment income and balance sheet

Yield math: Apply portfolio book yield with reinvestment at new money rates. Show both book and market yield impacts.
GAAP vs stat: AFS marks flow to AOCI under GAAP. Statutory often holds bonds at amortized cost.
Non-admitted assets: Haircut non-admitted assets in statutory surplus to reflect tangible capital.

Capital, RBC, and Solvency II

Ratio rules: RBC ratio equals TAC divided by ACL RBC. Know 200, 150, 100, and 70 percent action levels. Keep dividends above buffers post-stress, such as 300 percent plus.
Capital bridge: Statutory net income plus or minus AVR or IMR and other adjustments minus growth capital minus dividends equals change in surplus. Stress a regulatory or asset shock.
Solvency II: Show SCR coverage and a management buffer. Do not pass through all IFRS 17 earnings to dividends.

Valuation That Matches the Business

P&C carriers: Price to tangible book value anchored by normalized ROE, underwriting profitability, and investment yield. Tie ROE to a growth and cost-of-equity frame.
Life insurers: Appraisal or embedded value equals adjusted tangible equity plus value in force plus new business value growth minus cost of capital. If short on time, discount distributable earnings and test capital sufficiency.
Reinsurers: Price to book set by cat risk, retro costs, and cycle position. Link to expected ROE and book value volatility.
Brokers and MGAs: EV to EBITDA and free cash flow to equity. Argue the multiple via organic growth, retention, and M&A synergies. Map leverage and cash conversion to IRR.

Accounting Frameworks You Will See

U.S. GAAP LDTI: Discount rate in AOCI, current-assumption liability, constant DAC, and enhanced disclosures. If data mixes pre and post LDTI, normalize.
IFRS 17: Group by profitability. Measure LRC with CSM and risk adjustment. Exclude investment components from revenue. PAA can approximate short-duration contracts.
Stat vs GAAP: Statutory is the anchor for distributable surplus. GAAP AOCI can swing book equity without moving surplus, so separate dividend capacity from optics.

Regulatory Touchpoints That Change Cash

Dividends: Do not upstream cash that would breach RBC or SCR buffers without approval.
Reinsurance credit: Reflect collateral or qualified reinsurer status. Haircut recoverables appropriately.
Rating signals: AM Best, S&P BCAR, and Moody’s trends inform buffers and optics.

Documentation, Flows, and Economics

Documentation and triage

Inputs: Instruction memo, historicals with accounting basis labeled, triangles, reinsurance summaries, portfolio overview, and RBC or SCR snapshots.
Outputs: A working forecast, clean sensitivities, and a concise memo with the investment view and key risks.
Quality checks: Opening balances reconcile. UEPR and reserve roll-forwards tie. RBC or SCR computed post-dividend. Cash ties to the balance sheet.

Flow-of-funds you should master

P&C pipeline: Written to earned, losses and reserve change, expense split, underwriting income, investment on float, other, statutory pretax, taxes, surplus change, dividend test, and holdco cash or interest.
Life pipeline: Stat income with LDTI or local GAAP overlays. Add back non-cash movements that do not affect surplus. Subtract growth capital and realized gains per rules. Dividends gated by RBC or SCR.
Reinsurance pipeline: Ceded premium and commissions, losses, profit commission, reinstatement premium, net underwriting result, retrocession, and capital impact.

Economics and fee stack by subsector

P&C: Earned premium revenues, float-driven investment income, and capital drag via RBC. Returns equal underwriting margin plus investment yield over required capital.
Life: Spread or mortality margin plus yield minus credit losses, with high capital intensity. ALM drives results.
Reinsurer: Earnings swing with pricing cycles and events. Ceding commissions offset. Reinstatement and retro costs matter.
Broker or MGA: Commissions and fees with high cash conversion. M&A roll-ups with earnouts and integration costs drive realized returns.

Accounting and tax items that move cash

Deferred tax: Model DTA or DTL from reserve, DAC, and AOCI differences. Tax cash follows statutory, not GAAP.
Cross-border: Upstreaming depends on local capital and any withholding. Mention only if asked.
Acquisition accounting: In roll-ups, intangibles amortization can be tax-deductible. Show the cash tax impact.

Risks, Edge Cases, and Comparisons

Risks and stress items

Reserve risk: Add a 2 to 3 point loss ratio stress. Show the RBC impact and surplus hit.
Cat volatility: Include one 1-in-10 and one 1-in-25 event with reinstatements. Show aggregate exhaustion and book value drawdown.
Rate shocks: For life, a 100 bp rise lifts new money yields but can drive AOCI down under GAAP, while statutory surplus is steadier.
Asset credit: Map NAIC designations to C-1 charges. Stress downgrades and defaults.
Reinsurance credit: Haircut uncollateralized recoverables by counterparty strength.
Broker cash control: Separate trust from operating cash if instructed. Slippage is a red flag.

Comparisons interviewers probe

Broker vs carrier: Brokers convert cash with light capital. Carriers tie up capital and face underwriting volatility. Valuations align to EV or EBITDA vs price to tangible book with ROE.
Quota share vs surplus relief: Quota share sheds risk and capital strain but gives up upside. Surplus notes or reserve financing retain economics with leverage.
IFRS 17 vs LDTI: IFRS 17 recognizes profit as service. LDTI refines measurement but keeps traditional presentation. In both, distributable cash follows statutory capital.

Execution Plan Under Time Pressure

First 10 minutes: Confirm accounting basis and the capital metric. Align on deliverables. Target statutory-to-holdco cash if unspecified, and frame the indirect cash flow statement.
Build the spine: Lay out revenue drivers, loss or reserve and UEPR roll-forwards, cash schedule, and capital generation. Skip heavy formatting.
Capital rule: Add capital and a dividend rule tied to buffers. Layer investment income with old book vs new money yields. Specify reinsurance terms.
Validate then flex: Validate and run two or three real sensitivities. Summarize with Excel sensitivity tables for board-level questions.

Deliverables that land

Compact model: Inputs, drivers, calculation tabs for premium, losses, investment, and capital, and outputs. No uncontrolled Excel circularity.
Two-page memo: Normalized earnings power, capital constraints, valuation framework, two or three key sensitivities, and sector metrics like combined ratio, distributable earnings over EV, book value growth or volatility, and FCF conversion or net leverage.

Pitfalls that sink candidates

Day-one earning: Earning written premium day one. Build the curve.
Cash vs P&L: Treating incurred and paid as identical. Separate earnings from cash.
Ignoring reinsurance: Ignoring ceding, profit commissions, and reinstatements. They move margins.
Dividend shortcut: Dividends off GAAP net income without RBC or SCR checks. Test post-dividend ratios.
Accounting mix: Mixing pre and post LDTI or IFRS 17 without a bridge. Normalize or disclose.
AOCI blind spot: Dropping AOCI in tangible book bridges. Rising rates can swing book equity.
Broker timing: Assuming broker working capital is neutral. Timing differences can fund growth.
Life friction: Flat cost of capital on required funds in life appraisal. Add a frictional charge.

Preparation plan that works

Foundations: Master P&C combined ratio, triangles, UEPR, reinsurance, float income, RBC. For life, LDTI, IFRS 17 CSM concepts, stat vs GAAP, asset-liability duration, RBC C-1 or C-3. For reinsurance, program math and cat aggregates. For brokers, commission math, working capital, acquisition accounting, and leverage.
Drills: Build a 12-quarter P&C with capital in 60 minutes. Build a simplified annuity distributable-earnings model with LDTI overlays. Build a quota share with sliding-scale commission and loss sensitivities. Build a broker roll-up with two tuck-ins and a credit facility.
Memorize: RBC formula and action levels, LDTI changes, IFRS 17 terms, and the P&C income statement layout.
Sensitivities: P&C plus 2 loss ratio points, plus 1 catastrophe point, plus 100 bps reinvestment yield. Life plus 100 bps rate, credit loss on BBBs, and lapse shock. Reinsurance with a two-event set and reinstatements. Brokers plus 100 bps base rate, minus 50 bps organic growth, and delayed synergies.
Memo writing: Frame normalized ROE on tangible equity, near-term cycle view, explicit dividend gates such as RBC greater than 325 percent, and valuation triangulation. List two or three deal breakers such as reserve deficiency, weak pricing, and non-admitted asset reliance.

For broader modeling context, see this overview of sector-specific financial modeling and how to approach stress testing during interviews.

Numerical Illustrations

P&C baseline: Written premium 1,000 with 95 percent earned, 65 percent losses, 32 percent expenses, and 3 percent catastrophe. Underwriting is near breakeven. Investment income at 3 percent on 75 percent of earned premium adds around 21, so total is positive. ACL RBC is 25, TAC is 80, and RBC is 320 percent. A plus 2 point loss ratio shock cuts TAC by about 19, RBC to about 244 percent, and dividends pause. The impact is capital gating of cash.
Life baseline: Reserve 10,000, net spread 150 bps, operating expense 20, DAC amortization 15, and credit losses 10. Required capital is 6 percent of reserves, and growth adds 500 reserves. Stat income is about 120. Capital for growth is 30, and distributable is about 90 before a buffer. A plus 100 bp rate shock lifts new money yields but may lower GAAP equity via AOCI without moving statutory surplus. The impact is optics vs cash divergence.

What Strong Models Signal

Cash vs optics: You separate accounting optics from cash and capital reality.
Correct recognition: Your earning and loss recognition follow insurance mechanics.
Active levers: You use reinsurance and capital as levers, not afterthoughts.
Aligned valuation: Your valuation matches sector economics and solvency friction.

Final Checklist and Closeout

Tie-outs: UEPR and reserve roll-forwards tie with no plugs. RBC or SCR passes after dividends. Investment income reconciles to asset flows.
Sensitivities: Sensitivities are labeled and meaningful. Summaries reconcile to the core case.
Memo clarity: The memo states normalized earnings, capital constraints, valuation, and risks. Assumptions are labeled and time-stamped, with data gaps noted.

Archive the model, inputs, versions, and Q&A with user access logs. Hash the final files. Set retention aligned to client policy. Confirm vendor deletion and obtain a destruction certificate. Legal holds override deletion. The impact is an audit-ready record and clean handoff. If you want a refresher on building statements that reconcile cleanly, review the indirect cash flow statement and avoid classic three-statement errors before your next test.

Conclusion

A winning insurance modeling test shows how accounting, reinsurance, and solvency rules roll up to distributable cash with buffers intact. Keep the mechanics auditable, the capital math conservative, and the sensitivities decision-grade. That combination gets you from spreadsheet to boardroom conversation.