Assets, Liab, Surplus Flashcards
The balance sheet categorizes the assets two ways:
Cash & invested assets vs Non invested assets: Cash & invested assets are more liquid. This distinction is important given that the statutory accounting is focused on solvency.
Admitted vs nonadmitted assets: these are displayed in separate columns in the balance sheet. Non admitted assets are not easily convertible to cash to satisfy the insurer’s liabilities (now or in the future), and are therefore not included in the surplus.
Admitted Assets
*Bonds
*Stocks
*Real Estate
*Cash, Cash Equivalents and Short-Term Investments:
*Uncollected & Deferred Premiums & Agents’ Balances
*Amounts Recoverable from Reinsurers:
*Net Deferred Tax Assets:
*Receivables from Parent, Subsidiary & Affiliates
*Funds held from reinsured
*EDP: Network & Computer equipment/Electronic Data Processing
Stocks
instruments that represent an ownership share in a company; regulators will typically be concerned if the insurer has a relatively high holding of stocks, since they have volatile values.
-Common stocks provide voting rights, and possible dividends. They are subordinate to bondholders and creditors to receiving money in the event of a liquidation.
fair value after purchase
-Preferred stocks are similar to Common stocks, except that they do not offer voting rights, but they do guarantee dividends. Another difference is that the owners of preferred stocks have priority to those of Common stocks to receive a return of their investment during a liquidation.
Depends on whether redeemable or perpetual
Real Estate evaluation
Properties occupied by the company (need to occupy at least 50%): Depreciated cost – Encumbrances
Properties held for the production of income: Depreciated cost – Encumbrances
Properties held for sale: min (Depreciated cost, Fair value) – Encumbrances
Encumbrance = the outstanding amount of the loan
Uncollected & Deferred Premiums & Agents’ Balances
represent the written premium that has not yet been received
- Uncollected premiums & agents’ balances: balances due before the financial statement date
- Deferred premiums: balances due after the financial statement date
- The classes above also include the unpaid installment premiums that meet same criteria
Net Deferred Tax Assets
refers to future tax benefits that arise due to temporary differences in income recognition between tax and statutory accounting
Liabilities
Loss & Loss Adjustment Expense Reserves
Reinsurance Payable on Losses & LAE
Other Expenses (Excluding Taxes, Licenses & Fees)
LAE
Underwriting & investment expenses
Unearned Premiums (UEPR)
Ceded Reinsurance Premiums Payable: recorded net of any commission from
Funds held under Reinsurance Treaties
Provision for Reinsurance: provision for the reinsurance recoverables
Premium Deficiency Reserve:
Premium Deficiency Reserve
arises from premium which is insufficient to provide for losses and expenses
Common components of surplus
Common Capital Stock:
Gross Paid in & Contributed Surplus:
Unassigned Funds:
Common Capital Stock
par value of the insurer’s stock that is issued & outstanding. Par value is the min amount set by the insurer at which the stock can trade at its initial offering. Common capital stock is not material for most insurers as the par value is often set low.
Gross Paid in & Contributed Surplus
generated when the insurer issues stock. It equals the excess of the sale price of stock over its par value.
Unassigned Funds
results from the contribution of retained earnings to surplus. Mutual insurers surplus consists primarily of Unassigned Funds, as they do not issue shares.