B.3 Investment Accounting Flashcards
1
Q
Assets that insurers invest in
A
- Debt Securities; bonds, CMOs, preferred stocks
- common stocks
- mortgage loans
- real estate
- policy loans
- partnerships
- short term investments
- derivatives (FAS 133)
2
Q
FAS 115 debt securities
key considerations
A
- Proper recording at acquisition
- Proper income recognition while the security is held
GAAP Income = Coupons + Accretion of discount - amortization of premium - G/L recognition upon sale or maturity
- Carrying Value while security is held
- HTM, held for trading, Available for sale
3
Q
FAS 115: Impairment rules
A
impairment rules for HTM and available for sale (AFS)
- asset FV is based on quoted market price
- if the FV is trading below cost and is not believed to be temporary, the asset must be written down
- market dependent - impairment is temporary if the investor has the ability and intent to hold the investment during a forecasted recovery period
- collection dependent - impairment is temporary if ots probable the investor the cost through collection of amounts due
- requires significant judgement and documentation
- CF testing to support “ability to hold”
- credit rating of debt issuer
- changes in FVs of investment subsequent to the balance sheet date
- changes in economic and reg environment
- forecast of issuers performance provided by issuer
4
Q
Primary FAS 115 debt securities
A
*need to complete
5
Q
Accounting for FAS 115 equity investments
A
*need to complete
6
Q
FAS 115: treatment of policy loans, partnerships, short term investments
A
Policy Loans
– Secured by the surrender value of the policy
– Carried in balance sheet as invested assets at the unpaid balance of the loans
Partnerships
– Generally use equity method
Short-term Investments
– Commonly used by life insurance companies to help manage short-term liquidity and cash needs
– Carried at amortized cost (no significant difference between amortized cost and fair value)
