Balance Sheet/Income Statement Flashcards
1
Q
A
2
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A
3
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A
4
Q
Differences b/w SAP & GAAP in regards to taxes
A
- Taxes – (SAP: not deferred vs GAAP: can be deferred)
5
Q
Balance sheet assets (13)
what are non-invested assets?
which are non-invested assets?
A
- 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
6
Q
List Non-admitted asset (4)
what are they?
how treated in SAP on balance sheet?
A
- 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
7
Q
Balance sheet liabilities (9)
A
- 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
8
Q
Balance sheet surplus (3)
A
- 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)
9
Q
Balance sheet write-ins (5)
A
- Amt held under uninsured plans
- Other liab
- deposit liab
- Special surplus from retroactive reinsurance
- Guaranty funds
- Life insurance
10
Q
Sources of “net Investment income earned” from bonds (4)
investment income = net investment income earned + net investment realized capital gains
A
- 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)
11
Q
A
12
Q
A
13
Q
Sources of “Net investment realized capital gains” from bonds
investment income = net investment income earned + net investment realized capital gains
A
- 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)
14
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A
15
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A
16
Q
Sources of Stock Investment income (2)
A
- Dividends received (during yr)
- Change in accrual for dividends declared but unpaid (change in owed this yr vs last yr)
17
Q
A
18
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A
19
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A
20
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A
21
Q
Define derivative and why buy it?
A
- financial contract - Value depends on other asset
- to hedge or offset exposure of that other asset
22
Q
Hedge accounting vs.. mark to market accy
- impact on risk
- impact on surplus
A
- 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
23
Q
“capital and surplus” account in income statement does 2 things
A
- reflects changes in surplus that are not recorded in the income statement
- reconciles beginning surplus to the ending surplus
24
Q
A
25
_income statement Incurred_ (formula) (2)
incurred = ultimate
1. Current period ultimate + ∆ in prior period ultimate
1. current AY incurred **+** ∆ in prior AY incurred
2. current paid **+** ∆ in unpaid
26
27
net income = 1+2+3 (3 types of income)
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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
31
_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
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34
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
35
_How issuing new stock is recorded in income statement (2)_
1. Paid in capital – stock at par value
2. Paid in surplus – stock in XS of par value
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48
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_?
1. size of invested assets
2. level of risk in investment portfolio
3. taxes impact on investment income
_inv inc to premium_: ignores size of invested assets
_inv inc to invested assets_: ignores level of risk
49
# define _other UW expenses incurred_ in income statement
expense accy requires expense be _allocated in 3 ways_
total other expenses incurred during year
1. LOB
2. NAIC operating expense classifications (commsion and& brokerage, TL&F)
3. broad expense categories (LAE, other UW, investment)
50
_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
1. impacts pricing
2. inaccurate allocation across LOB creates subsidies that obscure true profitability of LOB--\> inefficient resource allocaton or adverse selection
51
what is the impact on surplus if ...
1. change in unrealized capital gains **less** capital gains tax = 25
1. change in unrealized capital gains **gross** capital gains tax = 25
+25
+25(1-Tc)
