CPCU 540 Ch. 4

Question 1

Under statutory accounting principles (SAP), an insurer’s total admitted assets minus its total liabilities

Answer 1

Policyholders’ surplus

Question 2

The equation that relates assets to liabilities and owners’ equity

Answer 2

Accounting equation

Question 3

An accounting rule that requires expenses incurred in generating revenues to be matched against those revenues

Answer 3

Matching principles

Question 4

Types of property, such as office furniture and equipment, that regulators do not allow insurers to show as assets on financial statements because these assets cannot readily be converted to cash at or near their market value

Answer 4

Nonadmitted assets

Question 5

Assets meeting minimum standards of liquidity that an insurer is allowed to report on its balance sheet in accordance with statutory accounting principles

Answer 5

Admitted assets

Question 6

Amounts for losses and loss adjustment expenses owed to an insurer under reinsurance agreements covering paid losses

Answer 6

Reinsurance recoverable

Question 7

A reinsurer that is not licensed or otherwise authorized to do business in primary insurer’s state of domicile

Answer 7

Unauthorized reinsurer

Question 8

The primary financial statement prepared by insurers and required by every state insurance department

Answer 8

NAIC Annual statement

Question 9

An estimate of the amount of money the insurer expects to pay in the future for losses that have already occurred and been reported, but are not yet settled

Answer 9

Loss reserves

Question 10

Estimates of the future expenses that an insurer expects to incur to investigate, defend, and settle claims for losses that have already occurred

Answer 10

Loss adjustment expense reserves

Question 11

A type of unsecured debt instrument, issued only by insurers, that has characteristics of both conventional equity and debt securities and is classified as policyholders’ surplus rather than as a liability on the insurer’s statutory balance sheet

Answer 11

Surplus note

Question 12

A reinsurer that is authorized to do business in the primary insurer’s state of domicile

Answer 12

Authorized reinsurer

Question 13

An unauthorized reinsurer that meets certain qualification and is approved by the state regulators of the ceding company’s state of domicile

Answer 13

Certified reinsurer