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Exam 6 > Odomorik 1-9 > Flashcards

Odomorik 1-9 Flashcards

1
Q

Common stocks

A

Voting rights, possible dividends, subordinate to bondholders and creditors in event of liquidation

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2
Q

Preferred stocks

A

No voting rights, guaranteed dividends, priority over common stock holders in event of liquidation

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3
Q

Properties occupied by company

A

Must occupy >= 50%

Value = Depreciated cost - Encumberances

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4
Q

Properties held for production of income

A

Value = Depreciated cost - Encumberances

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5
Q

Properties held for sale

A

Value = min(Depreciated cost, Fair value) - Encumberances

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6
Q

Uncollected premiums & agents’ balances

A

Balances due before financial statement date

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7
Q

Deferred premiums

A

Balances due after financial statement date

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8
Q

Premium over 90 days overdue

A

Nonadmitted asset; should be treated as impaired if not believed to be collected

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9
Q

Amounts recoverable from reinsurers

A

Balances due for losses that have been paid

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10
Q

Net Deferred Tax Assets

A

Future tax benefits due to temporary differences in income recognition between tax and SAP accounting

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11
Q

Common Net DTAs

A

Discounting of loss reserves, carryforward net operating losses (expects these to offset future gains and therefore future taxes)

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12
Q

Main sources of nonadmitted assets

A

Investments in EDP, software
Investments above state limitations
Furniture

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13
Q

Daily pro rata method

A

Based on number of days policy has expired

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14
Q

Monthly pro rate

A

1/24 earned in written month
1/12 earned over next 11 months
1/24 earned in final month

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15
Q

Premium deficiency reserve

A

Liability created if premium is insufficient to cover losses, expenses and other costs

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16
Q

Common capital stock

A

Par value of insurer’s stock issued and outstanding

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17
Q

Gross paid in & contributed surplus

A

Excess of sale price of stock to par value

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18
Q

Unassigned funds

A

Contribution of retained earnings to surplus

19
Q

Items in balance sheet that could present a risk to financial health

A

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

20
Q

Allocation of UW Income

A 
NAIC operating expense classification
Expense categories (by operational function)
LOB

If allocation not accurate, subsidies may arise

21
Q

Bond categories

A

US Gov’t
Bonds exempt from US tax
Other bonds (unaffiliated)
Affiliated bonds

22
Q

Amortization example

A

5-year $100 bond purchased for $90; $10 discount recognized as investment income over 5-year duration

23
Q

Value of a bond

A

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)

24
Q

Fair Value determination

A

From NAIC Valuation of Securities Manual

25
Q

Common stock value

A

Purchased –> initial carrying value
After purchase –> fair value
If not publicly traded, value determined by SVO

26
Q

Preferred stock value

A

Purchased –> initial carrying value
Highest 2 redeemable: amortized cost
Highest 2 perpetual: fair value
Lower rated: min(book value, fair value)

27
Q

Stock impairment

A

Reduction in fair value “other than temporary”

28
Q

Hedge accounting

A

Derivative significantly reduces risk – receives same accounting treatment as the hedged asset

29
Q

NAIC Model Investment Law

A 
Defined limits (quantitative)
Prudent Person (principles based, enables insurer to develop own guidelines)
30
Q

Measuring Investment income

A

Consider size, risk appetite, taxes (income to average invested assets does not reflect risk)

31
Q

Net income

A

EP + Investment income + Net realized capital gains + agents’ balances charged off + dividends to policyholders - (Loss&LAE + dividends to policyholders - taxes)

32
Q

Income or Surplus?

Unrealized capital gains

A

Surplus

33
Q

Income or Surplus?

Non-admitted assets

A

Surplus

34
Q

Income or Surplus?

Stock issued

A

Surplus

35
Q

Income or Surplus?

Net realized capital gains

A

Income

36
Q

Income or Surplus?

Agents’ balances charged off

A

Income

37
Q

Income or Surplus?

Dividends paid to stockholders

A

Surplus

38
Q

Income or Surplus?

Dividends to policyholders

A

Income (negative)

39
Q

Interest due and accrued

A

Over 90 days overdue –> non admitted

40
Q

Accrued Retro premium

A

10% of unsecured that is due to insurer is nonadmitted

41
Q

Taxes paid on direct investment

A

investment yield * personal tax rate

42
Q

Taxes paid on indirect investment

A

investment yield * [corporate tax rate + (1 - corp tax rate) * pers tax rate]

43
Q

Margin as a percentage of premium to avoid double taxation

A

Capital * investment yield * margin / premium

44
Q

Atkinson & Dallas formulae

A

Cost of holding capital = cost of double taxation plus cost of insurer investing in safer investments

Exam 6 (51 decks)

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