In one of the explanations for “if agents balances were to be written off”, it says Net Income would decrease. However, our formula for Other Income includes Agents Balances Charged Off as an additive value. Am I mixing concepts here or how does this appear to be positive in other income, but would decrease Net Income?
Sorry, is this for Exam 6C?
6U, 2017 Sprin #15 Part b, there is a 3rd explanation below:
Sample 3 10% of Agents Balances = 3,260 This would now be treated as a non-admitted asset and the change in its value would directly impact surplus The net income would be reduced if the company deemed the 3,260 uncollectible and decided to write it off
Meanwhile, the Income Statement BA article shows the “Other Income” formula as:
Other Income = SUM(agents’ balances charged off, service fees, aggregate write-ins) – (dividends to policyholders)
Should we assume agents balances charged off will be a negative input in the formula, or do these statements conflict? How could it reduce Net Income otherwise?
Isn’t agent’s balances charged off the amount of premium in which the insurer expects to be uncollectable from agents, and therefore shouldn’t it be negative if it’s “written off”, (which I assume means they take the hit and reduce Earned premium by that amount, or something like that?)