Total Investable Assets
Is the reason that we use the formula provided in the wiki for calculating total investable assets because it is easier than summing up individual asset amounts? Is there another version where we don't add liabilities, surplus and then subtract Agent balances, and instead use the assets on the balance sheet? I just ask as it seems weird we would use liabilities to calculate something called total investable assets.
Comments
Calculating it this way allows you to calculate net investment gain for a specific line of business. You have the liabilities by line of business, but not assets.
Sure, good luck.
So when calling them assets in Total Investable Assets does not refer to assets of a balance sheet but instead amounts that we have available to invest. It does seem very nonintuitive to include liabilities in a term called Total Invest Assets as Jaarndt mentioned.
With that being said, why does ceded reinsurance premium payable increase the TIA but Agents Balances gets removed from it? Are you not able to invest the Agents Balances?
"Agents' balances" are the premium monies held by the agents before they get remitted to the insurer. The insurer doesn't yet hold them. By contrast, "ceded reinsurance premium payable" is premium due to the reinsurer that is not paid yet, so the insurer is holding on to it. So, one reduces the investable assets, and the other increases it.
Is there a good reason why reinsurance premiums recoverable (pg. 2 line 16) is not subtracted out of total investable assets (under the same logic that we subtract out AB because it is not actually held by the insurer)?
There are differences in the level of certainty, and the nature of the assets that lead to the different treatment of agents' balances and reinsurance recoverables in the TIA calculation:
Timing and collection risk: Agents' balances can be subject to delays in remittance, as well as collection risk if an agent becomes insolvent or fails to collect and remit the premiums. The insurer may need to expend resources to collect these balances, and there is a possibility that some amounts may not be collected at all. In contrast, reinsurance recoverables involve a higher level of certainty, as they represent amounts that the insurer will receive from a reinsurer when a claim is paid, and reinsurers are typically subject to more stringent regulatory and financial requirements.
Nature of the asset: Agents' balances are primarily related to the insurer's operations and the collection of premiums, while reinsurance recoverables are directly related to the insurer's underwriting activities and risk management. By including reinsurance recoverables in TIA, the insurer's financial position reflects its risk transfer arrangements and overall exposure more accurately.