Insurance companies have assets to pay claims, not hold forever. In a way, the funds are similar to escrow funds held for a real estate transaction, only with a much longer and much more unpredictable payout pattern. Would you invest illiquid assets into an escrow fund?
If you want to invest in illiquid (or potentially illiquid) assets with the money set aside to pay claims, then you need to pay the price for lack of liquidity.
My accounting vocabulary has increased dramatically this year. I wish I could say the same about my comprehension. Wouldn’t it be simpler to say that the accounting process had loopholes that allowed scumbags to benefit?
The issue you mention does not involve the assets used to pay claims. Loss reserves belong to the subsidiary insurance companies, while the assets discussed in this article belong to the parent (or holding) company. Illiquid assets of the parent company are reported for accounting and stockholder purposes and have nothing to do with paying claims (normally).
The FASB regulation mentioned in this article relates to financial statements filed for investors and stockholders and is separate from the loss reserves of the insurance subsidiary (which would not be reported in the same way).
Insurance companies have assets to pay claims, not hold forever. In a way, the funds are similar to escrow funds held for a real estate transaction, only with a much longer and much more unpredictable payout pattern. Would you invest illiquid assets into an escrow fund?
If you want to invest in illiquid (or potentially illiquid) assets with the money set aside to pay claims, then you need to pay the price for lack of liquidity.
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My accounting vocabulary has increased dramatically this year. I wish I could say the same about my comprehension. Wouldn’t it be simpler to say that the accounting process had loopholes that allowed scumbags to benefit?
The issue you mention does not involve the assets used to pay claims. Loss reserves belong to the subsidiary insurance companies, while the assets discussed in this article belong to the parent (or holding) company. Illiquid assets of the parent company are reported for accounting and stockholder purposes and have nothing to do with paying claims (normally).
The investment of money in the loss reserve is strictly regulated by each state. (See here for more details about how this part of the industry works: http://www.naic.org/Releases/2008_docs/AIG_pay_claims.htm).
The FASB regulation mentioned in this article relates to financial statements filed for investors and stockholders and is separate from the loss reserves of the insurance subsidiary (which would not be reported in the same way).