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Chapter 15 Separate Accounts
Terms in this set (62)
Group pension funding business
Life insurance companies were at a disadvantage in competing with banks, financial institutions, and private as well as public investment organizations for what type of business?
The life insurance companies were limited in their investments in common stock.
What was the main disadvantage the life insurance company investment laws imposed on the life insurer before the adoption of the separate accounts?
Life insurers were able to invest in equities outside of the investments limits.
In 1962 the NAIC adopted the variable ANNUITY separate accounts statement in conjunction with the passage of state laws and regulations permitting life insurers the ability to do what?
The policyholder or contractholder.
In 1962 the NAIC also adopted a variable LIFE insurance separate accounts statement to facilitate the holding of equity investments by a life insurer in support of variable life insurance products. Who would bare the risks and rewards of the investment performance?
Accident and health business.
In 1989 the variable ANNUITY separate accounts statement was expanded to include variable LIFE insurance, and the variable LIFE insurance statement was discontinued. Provision was then made to cover what other business?
50% of a group pension contractholder's pension funding premiums and deposit.
Initially, separate accounts were set up for individual group pension contractholder's or small groups of pension contractholder's, and the amount of a customer's funds that an insurer was permitted to place in a variable annuity separate account was limited to what?
B/c the separate accounts statement are segregated from the investments in the general accounts of the company, if the company gets into financial difficulty, the assets in the separate accounts statement are not available to satsify general account obligations of the company.
What is meant when stated, "assets of the separate accounts are insulated"?
Two completed and different filings for each product. See money and any unsettled fees and expenses are reported with the corresponding product.
Separate statement filings are required for separate account products that are insulated from the general account and those products that are not insulated. If an insurer has both insulated and non-insulated separate account products, what must be submitted?
Funds Flow Statement
What approach does the separate accounts statement utilize?
The statement of changes in net assets that mutual funds use.
What is the funds flow statement approach similar to?
Assets, Liabilities and Surplus, Summary of Operations and Surplus Account, Analysis of Operations by Lines of Business, Analysis of Increase in Reserves, and supporting exhibits (Exhibits 1 through 6, Exhibits of Net Investment Income and Exhibit of Capital Gains (Losses) slightly modified).
What report are included in the separate accounts statement?
Product mix, products with general account guarantees, investment directives, allocations of investment proceeds, measurement of assets, securities lending transactions, FHLB funding agreements, and reporting differences between GAAP and statutory statements.
What does the General Interrogatories in the statement address?
Notes to Financial Statements, and other non-investment schedules, such as Schedule S or Schedule T.
What type of schedules are excluded from the separate accounts statement?
All inflows and outflows to the separate accounts statement, other than investment returns and activity, enter or leave the separate accounts statement via the general account statement.
What is a significant feature of accounting for the separate accounts business?
Premiums are recorded as premiums in the general account Summary of Operations, and then transferred to the separate accounts Summary of Operations, shown as premiums.
How are the separate accounts premiums recorded?
Deposits without any mortality or morbidity risk are excluded from the general account Summary of Operations and are recorded as balance sheet transactions. However, b/c of the separate accounts Funds Flow Statement approach, they will continue to be recorded in the separate accounts Summary of Operations.
Effective January 1, 2001 how are deposits on contracts recorded for separate accounts?
Are recorded as transfers into the general account Summary of Operations as well as benefits and withdrawals from the general account Summary of Operations.
How are benefits and withdrawals from the separate account statement recorded?
Are recorded as charges to income in the separate accounts statement and income in the general account statement.
How are charges assessed by the company handled for separate accounts?
The results inure to the contractholder.
Why are separate accounts investment purchases, sales, income and capital gains and losses recorded only in the separate accounts statement?
On the balance sheet for separate accounts, at which value are the variable life insurance and variable annuity business assets carried?
Based on the unit value or underlying equity interest of the policyholders in the market valued assets.
On the balance sheet for separate accounts, at which value are the variable life insurance and variable annuity business liabilities carried?
The use of such modified reserves compensates for the fact that the company puts the full amount of premium or deposits, net of charges or fees deducted, into the separate accounts statement, unreduced for actual out of pocket acquisition costs.
In some instances, modified reserve valuation bases are used for the reserves, such as the CRVM and the CARVM. Reserves under such modified bases are lower than the full account value or unit value reserve, why are they used?
Guaranteed interest contracts (GIC)
Some products typically written in the general account are also available as separate account products. This initially occurred with what product?
Investment allocation and crediting problems in the general account under "year of investment" allocation methods.
What were GIC's on the scene to solve or fix?
Crediting or using the investment return twice.
What problem did the GIC create instead?
Some companies write GICs outside both the general and separate accounts. What is the name of the product?
The client's assets are placed in a trust, that the insurer may administer. The insurer also provides the investment performance guarantee. The insurer recognizes investment mgmnt fees, risk charges and other related income in the Summary of Operations and generally carries a small liability on its balance sheet for the estimated value of the performance guarantee.
How is the synthetic GIC set up outside of the general and separate accounts?
The trust that holds the assets, not the insurer like in a separate account.
Who owns the assets in a synthetic GIC setup?
Annuity funding products where the return is guaranteed by the insurance company, but where the surrender value of the policy is generally at market value.
Another type of product that have been accounted for in the separate accounts statement generally referred to as "modified guaranteed annuities". What is it?
Part of a surrender provision to protect the insurance company from policyholder surrenders or withdrawals to take advantage of higher interest rates when rates rise before the maturity date of the contract.
Why is the modified guaranteed annuity valued at market basis?
The general account rather than the separate accounts statement. If an additional liability is needed for the minimum death benefit guaranteed, it is established in the general account statement. If additional funds are needed in the separate accounts, a transfer from the general account to the separate account is done
Some separate account products, have been embellished with ancillary guarantees such as minimum death benefit guarantees, where the company will pay a death benefit of no less than the premiums or deposit paid to the company, or guarantees of minimum investment performance against the index. Which account carries the cost of the guarantees of the separate accounts business?
The net cash flow is reported in the Summary of Operations, but policy loans are reported in the general account as an asset.
Policy loans can occur on separate account contracts and are most likely to occur in connection with a 401k plan or a variable life plan. How or where are the policy loans reported?
In the general account statement. Premiums and deposit enter the separate accounts statement only when they are received or funded by the company.
The separate accounts balance sheet makes no provision for premiums or deposits receivable. Should there be such a receivable, how is it recorded?
Other transfers to general account due or accrued (net).
What is the name of the separate accounts balance sheet liability account?
Transfer to (from) separate accounts.
What is the name of the corresponding liability account for the general account?
Reason for this is that, total separate accounts assets and liabilities are included in the general account balance sheet, and using a negative liability to offset the positive liability eliminates the need to have a consolidating adjustment.
Whichever statement has the receivable balance reports it as a negative liability rather than as asset, why?
If any modified reserve valuation methods are used for any separate accounts reserves, the allowance provided by the difference between the full account value reserve and the lower, modified basis reserve represents what in the separate accounts?
(as CARVM allowances) are recorded as being transferred from the separate accounts statement to the general account statement by setting up a liability for the transfer in the separate accounts statement and a corresponding negative liability in the general account statement. Transfer is never settled but eliminated over time.
What is the NAIC separate accounts accounting policy regarding "expense allowances recognized in reserves"?
Those that are carried on a general account basis and those carried at fair value.
The statutory Assets page separates the reporting of assets into two categories, what are they?
Those that support fund accumulation contracts (GICs), which do not participate in underlying portfolio experience, with fixed interest rate guarantees purchased under a retirement plan or plan of deferred compensation established or maintained by an employer.
What type of separate accounts are valued as if the assets were held in the general account?
Assets that support all other policies and contract and liabilities being recorded at current interest rates.
What type of separate accounts are valued at fair value?
Dependent upon the asset associated with the liability.
The statutory Liabilities page also provides separate reporting for liabilities and surplus carried at general account basis or fair value. What is the classification based on?
A net transfer is to or from the separate accounts statement is recorded to zero out the impact of those flows. The separate accounts Summary of Operations then reports them as an analysis of the net transfer from or to the general account.
Premiums, deposits, benefits and withdrawals flow through the general account statement to the separate accounts statement. What transfer is completed?
Change in expense allowance (change in CARVM allowances).
What change in reserves might be recognized as an item included in the analysis of transfers portion of the Summary of Operations?
All are recorded in the separate accounts Summary of Operations. Realized and unrealized capital gains and losses are detailed in the investment exhibits, combined with net investment income and included with investment income as revenue in the Summary of Operations.
How is the investment return on separate accounts investments recorded?
They accrue to the benefit or detriment of the policyholders and are credited to policy reserves.
What is the combining realized and unrealized capital gain and losses with net investment income?
They are recorded as charges to the separate accounts Summary of Operations and income in the general account Summary of Operations.
How are investment management and service fees charged to separate accounts contractholder accounts recorded?
Investment expenses and taxes. Underwriting and operating expenses for the separate account business are accounted for as expenses in the general account statement.
What expenses are included in the separate accounts statement?
Funds of policyholders and contractholders as a way of reimbursing or offsetting underwriting and operating costs of the company.
What account are fees charged against in the separate accounts?
The adjustment needed is for the company's equity in total unrealized capital gains or losses, based on its seed money equity position in particular separate accounts.
Net gain from operations in the general account excludes unrealized capital gains and losses. Therefore, when the separate accounts net gain from operations is carried into the general account Summary of Operations, what adjustment must be made to exclude any unrealized capital gains and losses that are included in the separate accounts net gain from operations?
The company must divide total unrealized capital gains and losses between those credited to reserves and those flowing through to net gain from operations. The account would be "Other changes in surplus in separate accounts statement" in the general account statement.
How is the adjustment to exclude any unrealized capital gain and losses determined, and which account is it incorporated?
Any IMR on separate accounts is carried in the separate accounts statement. The AVR on separate accounts is combined with and included in the general account statement AVR.
How is the IMR and AVR handled on separate accounts investments?
Basic contribution, reserve objective and maximum reserve data.
What worksheet for the IMR and AVR included in the separate accounts statement?
Surplus contributed or (withdrawn) during the year
What line in the Surplus Account statement on page 4 provides for the recording of surplus transfers between the general account and the separate account?
What line in the separate accounts statement is used for inflows in the equity portion of the balance sheet?
To get a new separate account up and running while it is beginning to be marketed to customers.
What is the most common reason for transfers from the general account to the separate account (in the accounts beginning)?
No. To cover the deficiency, the general account incurs an expense and the separate account realizes revenue.
Can the separate accounts surplus carry a negative?
Although the separate accounts deposits and withdrawals will continue to flow through the separate accounts Summary of Operations, they will not flow through the general account Summary of Operations.
SSAP No. 52 has no substantive impact on the separate accounts Summary of Operations, what impact is there on the general Summary of Operations?
(a) Surrender Benefits & Withdrawals $100,000
Liability for Deposit - Type Contracts $100,000
(b) Aggregate Reserves for Life Policies $100,000
Increase in Aggregate Reserves for Life Policies $100,000
Contractholder surrendered an ordinary life insurance policy and elected to place the proceeds ($100,000) under a supplementary contract without life contingencies (SCWOLC). What would the entry be for the General Account Statement?
(a) Cash $2,000
Net investment income $2,000
(b) Increase in liability for deposit-type contracts $2,000
Liability for Deposit-Type Contracts $2,000
Insurer's separate account fund for SCWOLC contracts assets earns $2,000 investment income that is immediately credited to the separate account fund for SCWOLC contracts. What would the entry be for the Separate account?
Management fees $100
Contractholder is assessed the annual administration fee of $100 for the SCWOLC contract. What is the entry for the General account statement?
(a) Administration fees $100
(b) Liability for Deposit-type contracts $100
Increase in liability for deposit-type contracts $100
Contractholder is assessed the annual administration fee of $100 for the SCWOLC contract. What is the entry for the Separate accounts statement?
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