Admitted Assets

What Are Admitted Assets?

Insurance companies commonly arrange their assets into one of three categories: admitted assets, invested assets, and non-admitted or different assets. Interestingly, with most companies that follow GAAP accounting principles, they utilize statutory accounting (STAT) set by the National Association of Insurance Commissioners (NAIC) to report financial data.

Under STAT accounting, a few assets have no value. Admitted assets are assets of an insurance company permitted by state law to be remembered for the company's financial statements, typically the balance sheet. Albeit each state has prudence over its insurance laws, there is a consensus over which assets are suitable to utilize while deciding the insurance company's solvency. Admitted assets frequently incorporate mortgages, accounts receivable, stocks, and bonds. The assets must be liquid and accessible to pay claims when essential.

Figuring out Admitted Assets

Admitted assets generally incorporate assets that are liquid and whose value can be assessed or receivables that can sensibly be expected to be paid. Since admitted assets are a critical part for computing capital adequacy to state insurance regulators, they have a much smaller definition than may be applied under Generally Accepted Accounting Principles (GAAP), which doles out value to most assets and uses all assets in deciding the value of a company. Admitted assets assist with deciding the solvency of a company, particularly while assessing the ability to pay a strangely large amount of claims immediately.

Admitted Assets versus Non-admitted Assets

As the name recommends, non-admitted assets are assets restricted by law from being admitted in the evaluation of the financial condition of a company. In short, they are excluded from the annual financial statements as they have practically no value in statutory reporting.

Non-admitted assets are assets with economic values that can't satisfy policyholder obligations. Additionally, they are either hard to sell or are not effectively switched over completely to cash (it requires at least one years to change over non-admitted assets to cash) in light of encumbrances — like liens — or third-party interests (e.g., reinsurance companies).

Non-admitted assets are more valuable than what they are quickly purposed for. They can likewise be taken a gander at as a source of collateral or used to work out a company's leverage. Common instances of non-admitted assets incorporate office furniture, prepaid expenses, and fixtures. Most immaterial assets (e.g., trade names, trademarks, and licenses), non-bankable checks, and stock held as collateral for loans are non-admitted assets. Notwithstanding, each state figures out what qualifies as an admitted or non-admitted asset.

Insurers are essentially worried about whether they are financially fit for paying out their claims. Excluding non-admitted assets and including admitted assets give them a clearer picture regarding whether this responsibility is compromised or conceivable.

Features

• Each state directs what comprises an admitted asset.
• Admitted assets are assets that, by law, are remembered for a company's annual financial statements.
• Admitted assets must be liquid and hold quantifiable value.
• Non-admitted assets are assets that have no value to satisfy policyholder obligations and won't be quickly changed over completely to cash.