Total Admitted Assets
In business, assets refer to a business entity’s economic resources that is either tangible or has physical substance, or intangible with no physical substance. According to the Accounting Framework, paragraph 49, “An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.”
Anything capable to be controlled or owned towards the production of value and is also in custody to generate helpful economic value is classified as an asset. In simpler terms, assets symbolize possession of value which produces cash. Cash itself is considered as an asset.
Examples of tangible assets are real estate, buildings, currencies, equipment, vehicles, precious metals, and equipment; while trademarks, franchises, patents, goodwill, trade names, and copyrights are classified as intangible assets. According to US Generally Accepted Accounting Principles (GAAP), intangible assets must be amortized as expense for more than five to forty years, except for goodwill.
Assets in business are classified as either current or non-current. Current assets stand for assets which are expected to be transformed into cash in a period of one year, or the business’ operating cycle, the longer period more applicable. Cash is the major example of current assets. Others are cash equivalents, short-term investments, inventory, receivables, and prepaid expenses.
Non-current assets represent those assets which are expected to be transformed into cash in a period of more than one year. Long-term investments and accounts receivable, and fixed assets such as building and machinery, are examples of non-current assets.
Conversely, assets in an insurance company are comprised of all available company properties to be exhausted in paying its debts. Total admitted assets, all other assets, and invested assets are the three categories of an insurance company’s assets.
All other assets represent possessions that generate no income for the business, like office furniture, office building, and liabilities such as unpaid or deferred premiums; while invested assets stand for income-producing properties, which include stocks, bonds, income-generating real estate, and cash. However, not all states take in unpaid or deferred premiums in the category for “All other assets” as they consider it “non-admissible.”
Admitted assets, in contrast, represent those assets that are presented in an insurance carrier’s annual financial statements in accordance with the laws and regulations of the state where it resides, as well as to the corresponding insurance regulations. Although admitted assets differ for every state, it is necessary that all assets considered as admitted must be liquid and are capable of being valued.
Admitted assets are essential in the determination of the solvency of an insurance company in case abnormal amount of claims are processed. Accounts receivable that are most likely to be collected, stocks, mortgages, real estate, and bonds, are the assets typically classified as admitted.
Total admitted assets, on the other hand, is the sum total of all assets classified as admitted. This amount must be stated net of real estate encumbrances and recoverable amounts from reinsurers. Estate encumbrances must be deducted from the amount of real estate, whereas recoverable amounts from reinsurers should be subtracted from unpaid losses liabilities and premiums unearned.