Balance Sheet/Income Statement Flashcards
Differences b/w SAP & GAAP in regards to taxes
- Taxes – (SAP: not deferred vs GAAP: can be deferred)
Balance sheet assets (13)
what are non-invested assets?
which are non-invested assets?
- Bonds, stocks, cash, derivatives, real estate, equipment
- Receivables
- Mortgage loans
- Investment income due & accrued
- Premium & considerations
- Reinsurance funds held w/ reinsured companies (like a receivable)
- Fed/foreign tax recoverable and interest
non-invested assets: less liquid
- uncollected premium & agent balances (due before bs date)
- defferred premiums & agents balances (due after bs date)
- Reinsurance recoverable
- net deferred tax asset
- receivables from parent, susidiaries, & affiliates
- aggregate write ins
List Non-admitted asset (4)
what are they?
how treated in SAP on balance sheet?
- Premium balance > 90 days overdue
- Net Deferred Tax Asset
- Furniture/equipment /supplies
- Bonds/stocks/mortgage loans/real estate/data equipment/software (in XS for state limits)
defined: not readily convertaible for use to meet liabilities during insolvency –> not recognized by DOI when evaluating solvency
SAP balance sheet: NOT an asset
Balance sheet liabilities (9)
- L&LAE rsvs
- Reinsurance payable on L&LAE
- commissions payable
- Other expense (exc T,L, &,fees)
- Ceded reinsurance payable
- Reinsurance funds held under reinsurance treaty (collateral)
- Unearned Premium
- Borrowed $ & interest
- Dividends declared & unpaid
- Provision for reinsurance
Balance sheet surplus (3)
- Common & preferred capital stock = par value (applies to stock insurance companies)
- Gross paid in & contributed surplus = sold in XS of par value (applies to stock insurance companies)
- Unassigned funds (applies to mutual insurance companies)
Balance sheet write-ins (5)
- Amt held under uninsured plans
- Other liab
- deposit liab
- Special surplus from retroactive reinsurance
- Guaranty funds
- Life insurance
Sources of “net Investment income earned” from bonds (4)
investment income = net investment income earned + net investment realized capital gains
- Interest received
- Interest due and accrued
- Interest paid for accrued interest on dividend
- Amortization of premium (sell for more than face value) OR Accretion of discount (sell for less than face value)
Sources of “Net investment realized capital gains” from bonds
investment income = net investment income earned + net investment realized capital gains
- Realized gain/loss on sale at maturity
- Realized foreign exchange gain/loss on disposal/sale (exchange rate movements)(sale must occur)
- Other than temporary impairments recognized (negative)
Sources of Stock Investment income (2)
- Dividends received (during yr)
- Change in accrual for dividends declared but unpaid (change in owed this yr vs last yr)
Define derivative and why buy it?
- financial contract - Value depends on other asset
- to hedge or offset exposure of that other asset
Hedge accounting vs.. mark to market accy
- impact on risk
- impact on surplus
- YES reduces risk vs does NOT reduce risk
- accounted for in same way as underlying asset → offsets hedged asset → NO impact to surplus
vs
change in fair value of derivative = unrealized gain/loss→YES impacts surplus
“capital and surplus” account in income statement does 2 things
- reflects changes in surplus that are not recorded in the income statement
- reconciles beginning surplus to the ending surplus
income statement Incurred (formula) (2)
incurred = ultimate
- Current period ultimate + ∆ in prior period ultimate
- current AY incurred + ∆ in prior AY incurred
- current paid + ∆ in unpaid
net income = 1+2+3 (3 types of income)
NEP=WP - ∆UEP
net incurred L&LAE = AY net inc L&LAE + ∆ in prior AY net inc L&LAE
net incurred L&LAE = Paid net inc L&LAE + ∆ in prior Unpaid net inc L&LAE
UW income = NEP- net incurred L&LAE - other UW expense incurred
investment income = net inv inc earned + net realized cap gains less tax
other income = “other income” + fed/foreign tax incurred - div to policyholders
other income = agent balance charged off + finance/service charges + agg write-ins for misc income
identify 3 situations that result in capital changes and/or surplus adjustments
new issuance of stock
return of captial
transfers from suprlus (retained earnings) to capital when stock dividends (from issued stock) are issued
How issuing new stock is recorded in income statement (2)
- Paid in capital – stock at par value
- Paid in surplus – stock in XS of par value
3 factors to consider when comparing investment income between insurers
why is it misleading to compare ratio of investment income to premium?
why is it misleading to compare ratio of investmnet income to average invested assets?
- size of invested assets
- level of risk in investment portfolio
- taxes impact on investment income
inv inc to premium: ignores size of invested assets
inv inc to invested assets: ignores level of risk
define other UW expenses incurred in income statement
expense accy requires expense be allocated in 3 ways
total other expenses incurred during year
- LOB
- NAIC operating expense classifications (commsion and& brokerage, TL&F)
- broad expense categories (LAE, other UW, investment)
income statement other UW expenses incurred
how to allocate policy adminsistrative expenses?
how to allocate suprervisor salaries?
why is expense accy allocation relevant to actuaries? (2)
policy adminsistrative expenses: policy count
suprervisor salaries: employee headcount
- impacts pricing
- inaccurate allocation across LOB creates subsidies that obscure true profitability of LOB–> inefficient resource allocaton or adverse selection
what is the impact on surplus if …
- change in unrealized capital gains less capital gains tax = 25
- change in unrealized capital gains gross capital gains tax = 25
+25
+25(1-Tc)
