Assets and Nonadmitted Assets – Vocabulary Flashcards

Asset Overview

  • Purpose: Statutory accounting emphasizes liquidity to assess solvency; assets have probable future economic benefits from past events (SSAP No. 4).
  • Presentation: Assets appear on the statutory balance sheet with a separate line for each class; cash and invested assets are shown as a subtotal to indicate liquidity.
  • Admitted vs Nonadmitted: Only assets that meet statutory requirements are admitted for solvency purposes; others are nonadmitted.
  • Net admitted assets: Assets minus nonadmitted assets.

Admitted vs Nonadmitted Assets

  • Admitted assets: assets specifically prescribed by SSAPs and/or state regulators as admissible for solvency.
  • Nonadmitted assets: assets not admitted, often due to limited liquidity or valuation concerns; examples include furniture and fittings (F&E).
  • Characteristics of admitted assets: (a) provides a probable future benefit, (b) beneficiary can obtain the benefit, (c) the right to the benefit resulted from past transaction/event and is under the entity’s control. If pledged/restricted, not considered under control for policyholder obligations.

Valuation and Impairment

  • Impairment framework: assets must be evaluated for potential impairment.
  • Impairment definition (SSAP No. 5R): an existing condition with uncertainty about potential loss to be resolved by future events.
  • Impairment process: asset impairment policy, board-approved, documented procedures, and justification for impairment decisions.

Asset Presentation and Net Admitted Assets

  • Format overview (current year):
    • Assets: invested assets may be adjusted to market/value differences; other assets are stated at statutory GL amounts net of allowed valuation allowances.
    • Nonadmitted Assets: asset amount not admitted by SSAPs or domicile state.
    • Net Admitted Assets: extNetadmittedassets=extAssets−extNonadmittedassetsext{Net admitted assets} = ext{Assets} - ext{Nonadmitted assets}

Asset Categories on the Balance Sheet (overview)

  • Bonds, Stocks, Real Estate, Mortgages, and Other Invested Assets (Schedule BA) are the main long-term categories.
  • Cash, Cash Equivalents and Short-Term Investments: defined and separated due to liquidity focus.
  • Receivables: premiums, agents’ balances, and other receivables; determines whether admitted or nonadmitted based on collectibility and terms.
  • Reinsurance assets: recoverables and funds held by/due from reinsured companies.
  • Health care delivery assets and leasehold improvements: special rules under SSAP 73; admitted if compliant.
  • Foreign currency translation: net adjustments or full translation methods depending on foreign operations.
  • Write-ins: use write-in lines for entries not fitting preprinted lines; include details in Details of Write-Ins.

Cash, Cash Equivalents and Short-Term Investments (SSAP No. 2R)

  • Cash: medium of exchange; includes deposits in banks and similar institutions; negative net cash is shown as a negative asset.
  • Cash equivalents: highly liquid, readily convertible to cash; original maturities generally ≤ 3 months; excluding derivatives.
  • Short-term investments: remaining maturities ≤ 12 months; include certain affiliated short-term investments under rolling/renewal rules.
  • Qualified cash pools: all participants affiliated; pool investments in non-affiliates; withdrawals allowed; asset valuation follows pool rules.
  • Schedule E: Part 1 lists depositories and balances; Part 2 lists cash equivalents; rolling investments reclassified when term extends beyond 90 days.

Derivatives and Hedge Accounting

  • Derivatives: include swaps, options, forwards, futures, caps, floors, collars; subject to state laws and hedging requirements.
  • Hedge accounting: two valuation approaches when hedging; (i) amortized cost if hedged item is at amortized cost; (ii) fair value if hedged item is at market value.
  • Details in Schedule DB; related guidance in SSAP No. 86 and SSAP No. 108 for specific hedging of guarantees.

Other Invested Assets (Schedule BA)

  • Schedule BA reports long-term invested assets not in other major categories (e.g., oil & gas, joint ventures, private funds, working capital finance investments, etc.).
  • SSAPs guiding these assets include SSAP No. 21R, 41R, 48, 93, 94R, 105R, and others.

Receivables and Other Assets

  • Receivables for securities; TBA (To Be Announced) receivables; health care receivables; government insured plans receivables under SSAP No. 84.
  • Receivables from uninsured plans and capitation arrangements: admitted if supportable under SSAP No. 84 and related rules; some receivables may be nonadmitted depending on collectibility.
  • Health care receivables: rebates, capitation, and risk-sharing receivables admitted if criteria are met; others may be nonadmitted.
  • Investments in receivables from parent, subsidiaries, and affiliates: admitted only if supported by a formal agreement and due date; >90 days overdue generally nonadmitted.

Reinsurance Related Assets

  • Reinsurance recoverables: amounts paid under reinsurance contracts; reported on Schedule F; recoverables on paid and outstanding claims.
  • Funds held by or deposited with reinsured companies: assets arising when acting as reinsurer; may be admitted up to associated liabilities.
  • Funds withheld provisions and call for advances from reinsurers: treated carefully; if advances are obligations, may be treated as credits/debits to appropriate lines.

Health Care Delivery Assets and Health Care-Related Items

  • Health care delivery assets: admitted if conform to SSAP 73; include supplies, pharmaceuticals, equipment, and leasehold improvements used in health care facilities.
  • Some health care-related items (e.g., non-healthcare inventory) may be nonadmitted.

Foreign Currency Translation

  • For US-domiciled insurers with foreign operations: translation methods depend on foreign operation size.
  • If Canadian operations < 10% of admitted assets/liabilities/net premium: use net adjustment method with a single adjustment line (unrealized gain/loss).
  • If > 10%: translate assets/liabilities at the balance sheet date rate; revenues/expenses at weighted average rate; gain/loss recorded as unrealized capital gain/loss.

Receivable from Parent, Subsidiaries and Affiliates

  • Balances from related entities can be admitted if supported by written agreement and due date; overdue > 90 days nonadmitted.
  • Some affiliate-related items (intercompany tax sharing, intercompany reinsurance, affiliated securities) are handled separately and may not be reported in this category.

Write-Ins for Assets

  • Used when preprinted lines are not appropriate; include a detailed breakdown in Details of Write-Ins.
  • Examples of write-ins: COLI cash value, prepaid pension cost, trade names, non-bankable checks, prepaid expenses, bills receivable not for premium, receivables for securities not received within 15 days, and more.

Quick Reference Formulas and Rules

  • Net admitted assets: extNetadmittedassets=extAdmittedassets−extNonadmittedassetsext{Net admitted assets} = ext{Admitted assets} - ext{Nonadmitted assets}
  • EDP admitted cap (SSAP 16R): extAdmittedEDP ≤ 0.03×Capital and surplus−Net DTAs−Net goodwillext{Admitted EDP} \,\le\, 0.03 \times \text{Capital and surplus} - \text{Net DTAs} - \text{Net goodwill}
  • Cash equivalents: original maturities generally ≤3 months\le 3\text{ months}; short-term investments: remaining maturities ≤12 months\le 12\text{ months}
  • Derivatives: treated under hedge accounting rules; special cases for health care and regulatory guidance apply.
  • Nonadmitted assets example: furniture and fixtures (F&E) due to limited liquidity and valuation challenges.
  • Schedule references: Schedule E (cash and cash equivalents), Schedule BA (other invested assets), Schedule F (reinsurance), Schedule DL (securities lending collateral), Schedule DB (derivatives).

Summary (Essence for quick recall)

  • Admitted assets are the assets insurers may use to meet policyholder obligations; nonadmitted assets are excluded from solvency calculations.
  • The asset page emphasizes liquidity and solvency, with a conservative valuation framework (e.g., bonds at amortized cost, impairment rules).
  • The balance sheet categorizes assets into major classes (bonds, stocks, mortgages, real estate, cash equivalents, etc.) and provides mechanisms to handle complexities (derivatives, hedging, pooled investments, health care assets, reinsurance, foreign currency translation).
  • Write-ins and detailed schedules ensure that assets not fitting standard lines are still disclosed with appropriate justification and detail.

Relevant Literature (selected)

  • SSAP No. 4, No. 2R, No. 5R, No. 6, No. 16R, No. 19, No. 21R, No. 22R, No. 25, No. 26R, No. 34, No. 35R, No. 36–47 series, No. 62R, No. 64, No. 65, No. 73, No. 74, No. 83–84, No. 86, No. 93, No. 94R, No. 97, No. 101, No. 102, No. 103R, No. 105R, No. 108, etc.
  • NAIC Capital Markets Special Report (illustrative asset mix) for context on asset composition.