AIAF 3: Life Insurer Financial Statements (Questions + Answers) Solved

Two unique life insurer asset accounts - Answer--Policy Loans: Required by all states; loan by an insurer to a PH with the cash value of the PH life ins policy as collateral. Upon policy termination, the unpaid balance is subtracted from the policy benefit -Separate accounts: Established solely to enable variable insurance product owners to participate directly in the account's investment performance T or F: Mortgage loans are usually a larger asset for life insurers than PC insurers - Answer-true Two major categories of policy reserves for a life insurer: - Answer-1) Future Policy Benefits: Reserves for traditional life ins and annuity contracts, includes: whole life, guaranteed-renewal, most fixed annuities 2) PH account balances: Required for nontraditional contracts in FASB 97 The liab for future policy benefits is valued as: - Answer--the excess of the pv of future promised benefits expected to be paid over the pv of the future net benefit premiums Why is a reserve for future policy benefits necessary? - Answer--In the early yrs of a traditional life ins policy or annuity, insureds pay a premium that covers more than the projected mortality costs for their age group -The excess is avail to fund future benefit pymts so needs to be reserved Assumptions for calc'ing future policy reserves: - Answer--Mortality rates: Probabilities of death at specific ages -Interest rate -Surrender rate: % of policies that are voluntarily surrendered -Lapse rate: % of policies that are terminated for failure to pay sufficient premiumLock-in concept - Answer--GAAP; certain assumptions are fixed over the policy term in valuing future benefits for traditional ins and annuities -Original actg assumptions should be used in subsequent actg periods to determine changes in the liab for future policy benefits Policyholders account balances (a life ins reserve) - Answer--For universal-type/nontraditional contracts such as variable; where one or more of the elements such as prem or mortality charges are not fixed and guaranteed -These reserves are required by FASB 97 -Universal-type contracts are usually characterized by: - Answer--a PH fund to which prem pymts and interest are credited and amts are assessed for mortality, coverage, and admin costs. When no mortality risk is transferred, contracts are accted for as investment contracts rather than ins contracts FASB 97: The liab for policy benefits for universal-type life ins shall be equal to the sum of: - Answer- 1. The balance that accrues to the benefit of PH at the date of the FS 2. Any amts that have been assessed to compensate the insurer for services to be performed over future periods 3. Any amts previously assessed against PH that are refundable on termination of contract 4. Any probable loss (prem deficiency) Who bears the investment risk of separate accounts - Answer--Contract owners General account - Answer--Invested assets of a life insurer that support the int-rate guarantees for which the insurer bears the investment risks Unique rev/exp accounts on a GAAP life ins IS - Answer--Revs: fees for universal life policies and annuity contracts -Exps: Increase in liability for future policy benefits; INt credited to PH account balancesT or F: Under FASB 97, nontraditional life and annuity contract premiums aren't recognized as revenue - Answer-true; they're treated like bank deposits with no rev when premiums are received. Instead, rev from nontrad consists of fees assessed against the contracts for admin, surrenders, mortality, exp risk Life insurer's major expenses are: - Answer--policy benefits under traditional life ins policies and annuity contracts Is any change in the liab for future policy benefits recognized in the current period? - Answer-Yes For universal-life-type contracts where PH acct balance is backed by the general account, int credited to PH is recog'd as: - Answer--an expense Insurers use ________ guidelines for valuing and reporting both realized and unrealized investment gains and losses - Answer-FASB 115 T or F: life insurer stmt of CFs is similar to PC stmt - Answer-true Aggregate Reserve for life contracts - Answer--Includes any changes in reserve valuation during the yr -calc'd as the excess of the pv of future benefits to be paid to or on behalf of PH less the pv of future net premiums -These reserves include reserves for uni-life-type contracts in the gen acct Key Components of Life Insurer Stmts - Answer--BS -Summary of Operations (instead of IS) -CF -Details on underwriting and invest results: --Exhibit of Prems & Annuity considerations for Life and Accident and Health contracts --Exhibit of Aggregate reserve for life contracts --Insurance Exp exhibit --Exhibit of claims for life and accident and health contracts --Int Maint Reserve--Asset Valuation Reserve -Details on Investment Holdings (listed on separate flashcard) -Notes to FS -General Interrogatories -5-year historical data Details on Investment Holdings Schedules for Life Insurers - Answer--Schedule A: Real Estate -B: Mortgage Loans -BA: Other LT invested assets -D: Bonds and Stocks -DA: ST Invests -DB: Derivatives investments -E: Cash and Cash equivs -F: **Contested and Compromised Claims** -S: **Reinsurance** -T: Prem and Annuity Considerations, Allocation by states and territories -Y: Info on Holding Company Members