The amount of the impairment is the difference between the net fair value (appraised) value less estimated costs to sell) of the collateral and the insurer's recorded investment in:

Question

Options

• Amortgage
• Bfair value
• Creal state
• Dvaluation of securities

• A
  71% (22)
• B
  3% (1)
• C
  16% (5)
• D
  10% (3)

Explanation

Option A is correct because when a mortgage loan is collateral-dependent, the insurer's recorded investment in the mortgage (principal, accrued interest, and unamortized fees/costs) is what gets compared against the net fair value of the collateral to determine the impairment loss - it quantifies how much of the loan balance cannot be recovered from the collateral.

Option B (fair value) is a distractor because fair value is already part of the formula (the collateral's appraised value side), not the item being measured against it. Option C (real estate) is wrong because real estate is the collateral used to derive the net fair value - the insurer holds an investment in the loan, not the property itself (unless foreclosure has occurred). Option D (valuation of securities) is unrelated; securities valuation applies to investment portfolios, not collateral-dependent loan impairment.

Memory tip: Think of it as a recovery test - "How much did I lend (mortgage investment), and how much can I get back (net fair value of collateral)?" The gap between those two numbers is the impairment.

No community discussion yet for this question.