Odomirok 6-7

Question 1

Why are nonadmitted assets not included in the surplus calculation?

Answer 1

Non admitted assets are not easily convertible to cash to satisfy the insurers liabilities

Question 2

List some differences between preferred stocks and common stocks

Answer 2

• Preferred stocks do not offer voting rights
• Preferred stocks guarantee dividends
• Owners of preferred stocks have priority to those of common stocks to receive a return of their investment during a liquidation

Question 3

Portion of agents balances that is nonadmitted:

Answer 3

Premium that is over 90 days overdue is nonadmitted

Question 4

Why should users be concerned if there are large receivables from parent, subsidiary or affiliates?

Answer 4

They are usually not as liquid as other assets

Question 5

Examples of nonadmitted assets

Answer 5

• Investments in bonds, stocks, mortgage loans or real estate that exceed any state limitations
• Investment in electronic data processing equipment & software that exceed the set limits
• Furniture, equipment & supplies
• Balances from agent from sale of a security, overdue by over 15 days
• Funds held at a reinsured company that exceed the associated liabilities
• 10% of deductibles recoverable in excess of collateral

Question 6

How should reserves be booked if management has a range of estimates, and no point within the range is more likely?

Answer 6

The midpoint should be booked

Question 7

2 methods to calculate the UEPR

Answer 7

1. Daily pro rata method: based on the number of days of the policy that have expired
2. Monthly pro rata method: assumes that premiums are written evenly through each month

Question 8

Define common capital stock

Answer 8

Par value of the insurers stock that is issued and outstanding

Question 9

Define gross paid and contributed surplus

Answer 9

This is generated when the insurer issues stock. It equals the excess of the sale price of stock over its par value