2017 S 15 10% become 90 days past due
in part B, it says amount > 90 days past due would become nonadmitted causing a direct charge to surplus. What about provision of reinsurance. I think the increased overdue will also increase provision of reinsurance which further decrease surplus. Is that correct?
Comments
No, that's not correct. The provision for reinsurance is for amounts due from reinsurers. The item in this question is "uncollected premiums and agents' balances" and that is separate from reinsurance recoverables.
you are right. I mixed up reinsurance recoverable on paid over due 90 days and agent balance over due 90 days. by the way reinsurance recoverable on paid over due 90 days is admitted asset, right?
Yes. The penalty for recoverables overdue 90 days is accounted for in the provision for reinsurance, which effectively reduces the value of the admitted asset anyway, even if the full value of the recoverable is still considered admitted.
According to SSAP-62R on Reinsurance:
For part b, can you elaborate 'the company decided to write off the non-admitted asset' and how it affect net income? I know net income = other income + U/W income + net investment gained. I don't see the connection between non-admitted asset and net income here. Thx!
I think the amount written off goes into "Net gain (loss) from agents’ or premium balances charged off" as a negative balance, which reduces net income (item 12 in the Income Statement, under Other Income).