Odomirok 6-7 Flashcards
Why are nonadmitted assets not included in the surplus calculation
Not easily convertible to cash to satisfy insurer’s liabilities
Preferred stocks vs common stocks
Common stocks: voting rights, dividends not guaranteed
Preferred stocks: no voting rights, dividends guaranteed
Owners of preferred stock receive priority to those of common stocks to receive ROI during liquidation
Portion of agents balance that is nonadmitted
premium >90 days overdue
Why should users be concerned if there are large receivables from parent, subsidiary, or affiliates
(when affiliates share resources)
ex. one affiliate pays all advertising expenses and seeks reimbursement from other insurance companies for their share
They’re usually not as liquid as other assets
Six examples of nonadmitted assets
- Investments in bonds, stocks, mortgage loans that exceed state limitations
- EDP & software that exceed set limits
- Furniture and supplies
- Balances from agent from sale of security >15 days overdue
- Funds held that exceed associates liabilities
- 10% of deductibles in excess of collateral
How should reserves be booked if management has a range of estimates and no point in the range is more likely
Midpoint should be booked
2 methods to calculate UEPR
Method 1: Daily pro rata method (based on number of days policy expired)
Method 2: Monthly pro rata method (assumes premiums written in the middle of the month)
ex. 1/24 earned in eff month, 1/12 over next 11 months, 1/24 earned in 13th month
Common capital stock
Minimum amount (par value) set by insurer at which stock can trade at IPO
Gross paid in & contributed surplus
Generated when insurer issues stock. Equals the excess of the sale price of stock over its par value
Valuation rules of real estate
Property occupied by company
Property held for production of income
Property held for sale
Depreciated cost - encumbrances
Depreciated cost - encumbrances
Min(Depreciated cost, Fair value) - encumbrances
Impairment
Insurer believes before 90 days that premium won’t be collected
Recognize as capital loss, no surplus benefit
Two most common sources of DTA
- Loss reserves (discounted in tax accounting, undiscounted in SAP)
- Carry forward net operating loss from prior years (if loss one year receive credit for less/no tax next year)
Premium deficiency reserve
Separate liability created if amount of premium not sufficient enough to cover losses and expenses
Unassigned funds
Earnings of company retained and not paid out as dividends (mutual insurance company surplus is mostly from here)
Is EDP admitted or nonadmitted?
Is network and company equipment admitted or nonadmitted?
Both Admitted
