Why are nonadmitted assets not included in the surplus calculation?

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Multiple Choice

Why are nonadmitted assets not included in the surplus calculation?

Surplus is based on assets that regulators consider readily available to satisfy policyholder liabilities. Nonadmitted assets are excluded because they are not easily convertible to cash or reliably usable to pay claims. If these assets were counted, the measured surplus could look stronger than the insurer’s true ability to meet obligations, especially in stressed situations. So the key idea is liquidity and reliability: only admitted assets that can be quickly turned into cash to satisfy liabilities are included in the surplus calculation.

Surplus is based on assets that regulators consider readily available to satisfy policyholder liabilities. Nonadmitted assets are excluded because they are not easily convertible to cash or reliably usable to pay claims. If these assets were counted, the measured surplus could look stronger than the insurer’s true ability to meet obligations, especially in stressed situations. So the key idea is liquidity and reliability: only admitted assets that can be quickly turned into cash to satisfy liabilities are included in the surplus calculation.

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