Insurance companies are required to write down all bonds not in good standing to what as assigned values by making charges to their statutory surplus through an entry to change non-admitted assets.

Question

Options

• ANon-admitted reinsurance
• BSecurities Valuation Office
• CMandatory economic benefits
• DInvestment reimbursements Office

• A
  2% (1)
• B
  81% (35)
• C
  9% (4)
• D
  7% (3)

Explanation

Option B is correct because the Securities Valuation Office (SVO), a department of the NAIC, is the regulatory body responsible for assigning values to securities held by insurance companies - including bonds not in good standing (e.g., defaulted or below investment-grade bonds). Insurers must write these bonds down to SVO-assigned values, recording the reduction as a charge against statutory surplus via a change in non-admitted assets.

Why the distractors are wrong:

• A (Non-admitted reinsurance) refers to reinsurance placed with unlicensed carriers, a completely separate concept from bond valuation.
• C (Mandatory economic benefits) is not a recognized statutory accounting term or regulatory body - it's a fabricated distractor.
• D (Investment reimbursements Office) does not exist as a regulatory entity; it conflates unrelated concepts to sound plausible.

Memory tip: Think "SVO sets the value" - the Securities Valuation Office does exactly what its name says: it values securities when the market or credit quality can't be trusted. If a bond is troubled, the SVO steps in to assign the number.

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