B.3 Other Topics

Question 1

How does FV reporting relate to FAS 107

Answer 1

-FAS 107 requires disclosure of FV for all financial instruments
-sometimes it is impracticable to determine a precise estimate:
in this case, company must disclose why it isnt practical and pertinent info for estimating FV

methods for determining FV:
1 - quoted price on active market
2 - market price of similar instrument
3 - PF of CF
4 - Cash Surrender Value

Question 2

How does FV reporting relate to FAS 133

Answer 2

FAS 133 - defines hybrid contracts (EIA)
- requires bifurcated EDs when:
1 - economic characteristics are not closely related to the host
2 - host + ED is not remeasured at FV under another standard
3 - if ED was a standalone instrument, it would be ASC815 derivative

3 types of hedges: CF hedge, FV hedge, Net investment in foreign currency hedge

Question 3

How does FV reporting relate to FAS 142

Answer 3

FAS 142 - goodwill and other intangibles

intangible assets = impaired if FV < carrying value

Question 4

surplus notes: General purpose and treatment under US stat vs GAAP

Answer 4

Surplus notes = Financial instruments issued by the insurance company that has characteristics of both debt and equity

regulatory requirements:

• state insurance dept must approve form and content
• must be subordinate to all policyholder liability and other creditors
• each payment of interest/principal requires prior approval of the issuing insurers domicile commissioner

STAT:

• treat notes as SURPLUS
• can be used as a source of capital to improve RBC
• note proceeds must be cash or admitted asset
• interest is not recorded as an expense until commissioner approves payment of interest

GAAP

• note treated as LIABILITY
• interest is accrued over the lifetime of the note, ignores if the commissioner has approved of it