Odomirok Ch. 6 to 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 insurer’s 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

Valuation rules for different types of real estate.

Answer 3

Properties occupied by company: Depreciated cost − Encumbrances

Properties held for the production of income: Depreciated cost − Encumbrances

Properties held for sale: Min(Depreciated cost, Fair Value) − Encumbrances** −
Costs to sell property

Question 4

Portion of agents balances that is nonadmitted:

Answer 4

Premium that is over 90 days overdue is nonadmitted

Question 5

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

Answer 5

They are usually not as liquid as other assets.

Question 6

Examples of nonadmitted assets:

Answer 6

• Investments in bonds, stocks, mortgage loans or real estate that exceed any state limitations
• Investments 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 7

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

Answer 7

The midpoint should be booked.

Question 8

2 methods to calculate UEPR:

Answer 8

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 9

Define common capital stock:

Answer 9

Par value of the insurer’s stock that is issued & outstanding

Question 10

Define Gross Paid in & Contributed Surplus:

Answer 10

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