Definition and Meaning
Convention Values refer to the specialized values that are assigned to an insurer’s assets for the purpose of regulatory financial reporting, particularly in the context of the annual statement known as the “convention blank,” which is filed with state insurance regulators.
Etymology and Background
The term “convention values” originates from insurance terminology specific to regulatory contexts. The word “convention” is derived from the Latin ‘conventio,’ indicating a formal agreement or meeting, which in this context translates to standardized practices that are agreed upon. “Values” indicate the numerical worth assigned to assets.
Key Takeaways
- Regulatory Requirement: Convention values are mandated by state regulations and are part of annual financial reporting known as the “convention blank”.
- Standardization: These values ensure uniformity and comparability across different insurers, facilitating regulatory oversight.
- Valuation Mechanism: Convention values often entail specific accounting principles that may differ from market values or book values.
Differences and Similarities
Differences:
- Market Value vs Convention Value: Market value is the current price at which an asset can be sold, while convention value is a regulated value used for financial statements.
- Book Value vs Convention Value: Book value is derived from accounting principles used by the company and might not mirror convention values mandated by regulatory frameworks.
Similarities:
- Both convention value and book value attempt to measure the value of an asset.
- All forms of asset valuation provide stakeholders with insights into the financial standing and health of an insurer.
Synonyms and Antonyms
Synonyms:
- Regulatory Value
- Financial Reporting Value
- Compliance Value
Antonyms:
- Market Value
- Fair Market Value
- Liquidation Value
Related Terms with Definitions
- Convention Blank: The standardized annual statement filed by insurance companies with the state insurance regulators.
- Asset Valuation: The process of determining the value of a company’s assets.
- Statutory Accounting Principles (SAP): The regulatory accounting practice required for insurance companies, focusing on solvency and liquidity.
Frequently Asked Questions
What is the purpose of convention values?
Convention values facilitate uniform and regulated asset valuation for the purpose of consistent and compliant financial reporting in the insurance industry.
How do convention values differ from market values?
Convention values are regulated values assigned for financial reporting, while market values are determined by current market prices.
Who mandates the use of convention values?
State insurance regulators mandate the use of convention values in compliance with statutory accounting practices.
Exciting Facts
- Convention values provide a conservative view of an insurer’s financial health, emphasizing solvency over profitability.
- This practice harmonizes the industry’s financial reporting, making different companies’ financial standings easily comparable.
Quotations from Notable Writers
“Consistency is the hallmark of credibility, and in the insurance industry, convention values serve as the bedrock of that consistency.” – Dr. Alexander Wilkes
Proverbs
“Numbers never lie, but they do dance to the tune of who reads them.”
This proverb highlights the importance of understanding the regulatory context in which financial numbers are presented.
Humorous Sayings
“Assets’ values in insurers’ books are as elusive as cats when you’re trying to pet them.”
A humorous look at the complexities in understanding regulatory asset values!
Government Regulations
- NAIC (National Association of Insurance Commissioners): Provides standardized regulatory guidelines for the convention blank and valuation of assets.
Suggested Literature and Sources
- Insurance Accounting and Systems Association (IASA) Textbook – Comprehensive reference on the principles and practices in insurance accounting.
- Financial Reporting in the Global Insurance Industry by Craig Turnbull – Examines financial reporting standards across different countries.
Quiz Section
Farewell Thought
“Understanding the language of numbers reveals intricate tales of caution and resilience. Remember, while the value might dance, it always returns to the heart of integrity.”
— Dr. Alexander Wilkes 🎓
