CFE Statutory Accounting Principles & Insurance Financial Statements 3

Question 1

What is the Interest Maintenance Reserve (IMR) used for in life insurance statutory accounting?

Accepted Answer

To defer realized capital gains and losses on fixed-income investments and amortize them into income over the remaining life of the investment sold

Answer

To set aside funds for interest credited to policyholders on their contracts

Answer

To maintain a minimum guaranteed interest rate for policyholder reserves

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To reserve for potential interest rate increases that could reduce bond market values

Question 2

What is the Asset Valuation Reserve (AVR) in statutory accounting for life insurance companies?

Accepted Answer

A reserve to stabilize surplus against credit and equity investment risks

Answer

A reserve for individual assets that have declined below their book value

Answer

A valuation adjustment required for foreign currency-denominated assets

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A reserve maintained specifically for assets scheduled for near-term sale

Question 3

In the context of insurance regulation, what does a 'risk-focused examination' refer to?

Accepted Answer

An examination approach that allocates resources based on an insurer's risk profile and highest-risk areas

Answer

An examination that exclusively reviews an insurer's investment portfolio for credit risk

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An audit focused solely on the insurer's actuarial reserve adequacy

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A review process limited to an insurer's enterprise risk management department

Question 4

What is the purpose of the 'opinion of the appointed actuary' included in the NAIC Annual Statement?

Accepted Answer

To attest that loss and premium reserves are adequate and meet applicable actuarial standards

Answer

To certify the accuracy of the insurer's filed premium rates

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To verify that investment yields meet regulatory minimum requirements

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To certify that all reinsurance treaties are actuarially sound

Question 5

What is a 'premium deficiency reserve' (PDR) in insurance accounting?

Accepted Answer

A reserve established when anticipated losses and expenses exceed the unearned premium reserve

Answer

A reserve for premiums that policyholders have failed to pay on time

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A reserve for the timing difference between written and earned premiums

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A reserve for policies written below minimum premium thresholds

Question 6

When an insurer's Total Adjusted Capital falls below its 'Company Action Level' (CAL) RBC, what is required?

Accepted Answer

The insurer must file a comprehensive RBC plan with the commissioner outlining corrective actions

Answer

The state regulator immediately places the company in receivership

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The insurer must immediately cease writing new business

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The insurer must obtain a licensed actuary to certify its financial condition

Question 7

In statutory insurance accounting, what is the significance of an asset being 'admitted' versus 'nonadmitted'?

Accepted Answer

Only admitted assets count toward satisfying statutory reserve and surplus requirements

Answer

Admitted assets earn tax-deferred income while nonadmitted assets are fully taxable

Answer

Only admitted assets may be reinsured; nonadmitted assets must be retained net

Answer

Nonadmitted assets must be disclosed to policyholders but admitted assets need not be