Odomorik 1-9 Flashcards
Common stocks
Voting rights, possible dividends, subordinate to bondholders and creditors in event of liquidation
Preferred stocks
No voting rights, guaranteed dividends, priority over common stock holders in event of liquidation
Properties occupied by company
Must occupy >= 50%
Value = Depreciated cost - Encumberances
Properties held for production of income
Value = Depreciated cost - Encumberances
Properties held for sale
Value = min(Depreciated cost, Fair value) - Encumberances
Uncollected premiums & agents’ balances
Balances due before financial statement date
Deferred premiums
Balances due after financial statement date
Premium over 90 days overdue
Nonadmitted asset; should be treated as impaired if not believed to be collected
Amounts recoverable from reinsurers
Balances due for losses that have been paid
Net Deferred Tax Assets
Future tax benefits due to temporary differences in income recognition between tax and SAP accounting
Common Net DTAs
Discounting of loss reserves, carryforward net operating losses (expects these to offset future gains and therefore future taxes)
Main sources of nonadmitted assets
Investments in EDP, software
Investments above state limitations
Furniture
Daily pro rata method
Based on number of days policy has expired
Monthly pro rate
1/24 earned in written month
1/12 earned over next 11 months
1/24 earned in final month
Premium deficiency reserve
Liability created if premium is insufficient to cover losses, expenses and other costs
Common capital stock
Par value of insurer’s stock issued and outstanding
Gross paid in & contributed surplus
Excess of sale price of stock to par value
Unassigned funds
Contribution of retained earnings to surplus
Items in balance sheet that could present a risk to financial health
High volatility in assets (collateralized mortgage obligations, stocks); bad investments (low-grade bonds); fixed income securities in high interest rate environment; potential for devaluation of real estate; small percentage of cash (high percentage illiquid); lack of diversification
Allocation of UW Income
NAIC operating expense classification Expense categories (by operational function) LOB
If allocation not accurate, subsidies may arise
Bond categories
US Gov’t
Bonds exempt from US tax
Other bonds (unaffiliated)
Affiliated bonds
Amortization example
5-year $100 bond purchased for $90; $10 discount recognized as investment income over 5-year duration
Value of a bond
When purchased –> actual cost
After purchase, adjusted carrying value (ACV):
Class 1-2: amortized cost (updated annually)
Class 3-6: min(amortized cost, fair value)
Fair Value determination
From NAIC Valuation of Securities Manual
