POLICY LOANS on Universal Life Policies...

[Seydo]

I work in an African company, and I'm currently wrapping up with our company's reserves. We have a relatively huge UL portfolio, and the reserving basis is to use the Account values as at the end of the year. I had quite a huge reserve figure for this portfolio, but our accounts department are insistent I deduct the policy loans from the said figure, coz in actual sense that's what we'd be liable for. I've always known that it's wrong to do that, but i don't have any good reasons for not going by that way. Any help?? I'm getting battered by the finance guys. Our regulators, have no clear cut rule binding us from not doing that either. Thanx in advance

[Sleeping Dragon]

If the loan is held as an asset in the balance sheet, the loan should not be deducted from the reserve. When a policy surrenders, the company releases the account value and the policy loan.

[Seydo]

Originally Posted by Sleeping Dragon

If the loan is held as an asset in the balance sheet, the loan should not be deducted from the reserve. When a policy surrenders, the company releases the account value and the policy loan.

Any particular reason for that?? It really surprises me that accountants would not know such a simple rule...

[Sleeping Dragon]

If the policy loan is an asset in the balance sheet there cannot be a negative liability for the loan. Having a negitive liability would double count the loan in the balance sheet.

[Seydo]

Originally Posted by Sleeping Dragon

If the policy loan is an asset in the balance sheet there cannot be a negative liability for the loan. Having a negitive liability would double count the loan in the balance sheet.

Yeah I think that should make sense to them.... They are so concerned about not making policy loans a representative asset forgetting that it will still be an asset and has to be stated in the Balance sheet.
Thanx a lot

[Chuck]

Maybe in your African country, the accountants do not carry the policy loan as an asset? Then what they want would make more sense.

[Seydo]

Originally Posted by Chuck

Maybe in your African country, the accountants do not carry the policy loan as an asset? Then what they want would make more sense.

Unfortunately, the regulation is terrible over here so every company does what it wants in order to make the books look good. It's a big problem.

[timcomp]

Thank you for making an effort to change things.