Statutory Balance Sheet

Question 1

two broad ways to classify assets

Answer 1

• cash and invested assets vs non-invested assets

* admitted vs non-admitted assets

Question 2

SAP carrying value of bonds

Answer 2

• NAIC 1-2 - amortized cost

* NAIC 3-6 - lower of fair value and amortized cost

Question 3

SAP carrying value of stocks

Answer 3

• common stocks - fair value
• redeemable preferred stocks, NAIC 1-2 - cost
• perpetual preferred stocks, NAIC 1-2 - fair value
• preferred stocks, NAIC 3-6 - lower of fair value and cost

Question 4

SAP balance sheet classification and valuation of real estate

Answer 4

• occupied by company (at least 50%) - depreciated cost
• held for production of income - depreciated cost
• held for sale - lower of fair value and depreciated cost

Question 5

cash equivalents vs short-term investments

Answer 5

• cash equivalents - original maturity < 3 months

* short-term investments - original maturity < 1 year

Question 6

examples of non-admitted assets (6)

Answer 6

• investments in excess of state limits
• portion of DTAs determined by admissibility test
• premium > 90 days past due
• furniture, equipment, supplies
• 10% of deductibles collectible in excess of collateral
• funds held by reinsured companies that exceed associated liabilities

Question 7

example of a timing mismatch between revenues and expenses under SAP

Answer 7

acquisition expenses are fully realized at policy outset

Question 8

common sources of DTAs (2)

Answer 8

• loss reserves are discounted for tax purposes but not for statutory purposes, so income is higher on a tax basis
• carryforward of net operating losses from previous years