A2. Odomirok 6&7

Question 1

Why are nonadmitted assets not included in the surplus calculation

Answer 1

Non admitted assets are not easily convertible cash to satisfy the insurer 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 on their investment during a liquidation

Question 3

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

Answer 3

They are usually not as liquid as other assets

Question 4

Portion of agents balances that is nonadmitted

Answer 4

Premium that is over 90 days overdue

Question 5

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

Answer 5

The midpoint should be booked.

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 and software that exceed limits
• Furniture, equipment and 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

Define common capital stock

Answer 7

Par value of the insurers stock that is issued and outstanding

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 Gross Paid in 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

Question 10

Real Estate Valuation

Answer 10

Properties occupied by the company: depreciated cost-encumbrances

Properties held for the production of income:
Depreciated cost-encumbrances

Properties held for sale: min(depreciated cost, fair value)-encumbrances

Question 11

Assets

Answer 11

Bonds
Stocks
Preferred stocks
Real estate
Cash, cash equivalents and STI
Uncollected and Deferred Prem and AB
Amounts recoverable from reinsurers
Receivables from parent, subsidiary and affiliates
Nonadmitted assets

Question 12

Liabilities

Answer 12

LLAE reserves
Reinsurance payable on LLAE
Other expenses
Unearned premiums
Premium deficiency reserve
Ceded reinsurance Prem payable
Funds held under reinsurance treaties
Provision for reinsurance

Question 13

Surplus

Answer 13

Common capital stock
Gross paid in & contributed surplus
Unassigned funds