Chapter 13 Flashcards
Statutory Reporting Requirements
A stock life insurance company writing both participating and nonparticipating business must follow special accounting procedures under the laws of certain jurisdictions. The purpose of these special accounting procedures is to provide for a separation of accounting, so that profits applicable to participating and nonparticipating business can be appropriately determined. This is a critical process, since profits from participating business are regulated as to their distribution among participating policyholders and the company’s stockholders. Some jurisdictions require the filing of several of the statutory statement exhibits in three forms, one for the company as a whole, a second covering participating business only, and a third for nonparticipating business.
The Analysis of Operations by Lines of Business (“Gains and Loss Exhibit”) serves as a focal point for reconciliation to the Summary of Operations as well as several supplemental exhibits
- The “Gain and Loss Exhibit” is one of the several Annual Statement exhibits that are required to be filed separately for participating and non-participating business in certain states.
Requirements for the participating and nonparticipating branches is limited to major and secondary lines of business, but a company would usually carry this separation throughout all of its premium classifications.
major lines of business for allocations of receipts and expenses
- Industrial Life
- Ordinary
- Credit Life (Group and Individual)
- Group Life
- Group Annuities
- Group Accident and Health
- Credit Accident and Health (Group and Individual)
- Other Accident and Health
- Aggregate of All Other Lines of Business
secondary lines (Ordinary)
• Life Insurance
• Individual Annuities
• Supplementary Contracts
Schedule H- classes of Other Accident and Health detail classification: • Collectively Renewable • Non-Cancelable • Guaranteed Renewable • Non-Renewable for Stated Reasons Only • Other Accident Only • All Other
Schedule H
Schedule H requires a further analysis of the company’s accident and health business by measuring the gain from underwriting after dividends to policyholders for the various classes of business.
Schedule H retains the identity of the Group Accident and Health and the Credit Accident and Health lines of business. However, in Schedule H the line of business designated as Other Accident and Health is subdivided to identify individual policies or elective options.
- Collectively Renewable
- Non-Cancelable
- Guaranteed Renewable
- Non-Renewable for Stated Reasons Only
- Other Accident Only
- All Other
Revenues
Premium and Annuity Considerations for Life and Accident and Health Policies and Contracts; Fees for Deposit-Type Contracts
For each classification of business from major and secondary lines through classes and sublines and subclasses, a life insurance company needs to identify premium as direct; reinsurance assumed; or reinsurance ceded.
Deposits-Type Contracts reported separately as they represent transactions containing no mortality/morbidity risk.:
• Guaranteed Interest Contracts and Annuities
• Annuities Certain
• Supplemental Contracts
• Dividend Accumulation or Refunds
• Premium and Other Deposit Funds
Revenues
Other Income
Miscellaneous income and commissions and expense allowances received on reinsurance ceded are usually identified directly with a specific line of business, branch or class of business
Policy Benefits
Death Benefits
Death benefits are usually recorded in the accounts so as to provide all necessary data of lines of business such as industrial, ordinary, group or credit life.
Since death benefits are not a feature of accident and health policies, there is no provision for reporting death benefits in the Gain and Loss Exhibit or Schedule H.
Policy Benefits
Matured Endowments
Like death benefits, matured endowments are not a feature of accident and health policies, so there is no provision within the special schedules and exhibits pertaining to accident and health insurance. Provision must be made for identifying matured endowment benefits as participating and nonparticipating
Policy Benefits
Annuity Benefits
Annuity benefits need only be classified into line of business categories, as individual annuities or group annuities. They also need to be segregated into the participating or the nonparticipating branch. There are no reported death benefits separate from other benefits for these contracts.
Policy Benefits
Coupons, Guaranteed Annual Pure Endowments, and Similar Benefits
- The major difference between coupons and guaranteed annual pure endowments and policy dividend on the other hand, is that the coupons and annual endowments represent benefits guaranteed by the company, while dividend payments are not guaranteed.
Coupons and guaranteed annual pure endowments are benefits usually associated only with ordinary life policies.
Policy Benefits
Surrender Benefits and Other Fund Withdrawals
Surrender benefits are usually applicable to all lines of life insurance and annuities but are not typically included in health insurance contracts.
Policy Benefits
Group Conversions
- Coverage to some form of individual policy within a specified time limit. The ultimate experience on such converted policies is usually substantially worse than on the same class of individual policies that were subjected to the insurance company’s normal underwriting procedures. To reflect more accurately the results of operations for the lines involved in such conversions, most companies charge the group line of business (life or accident and health but not annuities) with a conversion fee, and credit the conversion fee to the individual line of business (ordinary or other accident and health) from which the conversion policy was issued.
Change in Policy Reserves
Accident and Health Reserves
For the three required A&H lines of business, group accident and health, credit accident and health, and other accident and health, in the “Analysis of Operations by Lines of Business.”
- The component reserve parts are grouped into two categories: active life reserves and claim reserves.
• The active life reserves includes unearned premium reserves, additional reserves, reserves for future contingent benefits (deferred maturity and other similar benefits), and reserves for rate credits.
•The claim reserves (Part B of the Exhibit) are the present value of amounts not yet due on claims and reserves for future contingent benefits (deferred maternity and similar benefits).
Exhibits to consider when completing Schedule H
Aggregate
• “Contract Claims Exhibit.”.
• “Aggregate Reserve for Accident and Health Contracts”
Accident and health claim reserves for due and unpaid claims, claims in the course of settlement and incurred but unreported claims are reported in the “Contract Claims” exhibit. Components of claim reserves for accident and health policies are therefore reported in the “Aggregate Reserve for Accident and Health Contracts” exhibit and partially in the “Contract Claims” exhibit.
Commissions on Premiums and Annuities
Commissions incurred by line of business are detailed in “Exhibit 1—Part 2, Dividends and Coupons Applied, Reinsurance Commissions and Expense Allowances and Commissions Incurred Exhibit” for first year commissions, commissions on single premiums, renewal commissions, and total commissions. The total amount of commissions incurred is also reported by line of business in the “Analysis of Operations by Lines of Business.”
Commissions incurred for the credit life and credit accident and health lines of business are also reflected in the “Credit Insurance Experience Exhibit.” Commissions applicable to group accident and health and credit accident and health lines of business are reported in these same classifications in Schedule H, but the commissions are broken down as to direct business, reinsurance assumed, and reinsurance ceded.
General Insurance Expenses
Any method of expense distribution should start with a recognition that expenses fall into two general categories, separable expenses (sometimes referred as direct) and joint expenses (sometimes referred to as indirect).
Taxes, Licenses, and Fees (excluding FIT)
State tax on premiums can be allocated fairly accurately to lines of business and class of business by spreading them in proportion to direct premiums written by line of business.
When using this method, care must be taken to utilize only direct premiums, since reinsurance premiums assumed and ceded are excluded from the tax base when premium taxes are calculated.
