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Accredited Financial Examiner (AFE) Questions 46–50 (page: 11)

A logical first step toward understanding _________________ of a life and health insurance company and the related financial reporting considerations is to review the manner in which different interested parties view the end result of the accounting process for capital and surplus transactions, for example, the adequacy of the resulting balances.
Key interested parties include:

· Policyholders
· Agents
· Stockholders
· Insurance regulators
· Rating agencies
· Management

The value of the capital stock shown in the stock life insurance company's statutory basis balance sheet equals the par value per share multiplied by the number of issued shares. In the case of no-par stock:

Special surplus funds are portions of surplus allocated or appropriated for a specific purpose. Special surplus funds usually are allocated voluntarily but also may be required by an insurance regulator. Which one the following is NOT an example of special funds:

To realize the effect on the "bottom line, " or the net gain from operations, from various transactions, one must consider the amount of any liabilities that are released because of the transaction. Assume a death claim entry as follows:
Death proceeds-ordinary $10, 000
Dividends on deposit disbursed 1, 000
Cash $11, 000
On first appearance, one might think that this will cause the net gain from operations to be $11, 000 lower. However, if the policy has a reserve of $3, 000, the effect on the net gain is only ______________ , because the reserve liability of $3, 000 and the dividend liability of $1, 000 will no longer be shown on the balance sheet

An annuity contract provides: