Financial solvency management of premium fiduciary funds is required by Insurance Code. Its main purpose is to help producer agencies comply with Code-prescribed fiduciary obligations. In its basic definition, financial solvency management must be able to demonstrate to owners, carriers, auditors, and regulators that premium funds maintained in trust bank accounts by producer agencies are solvent.

Paulmar Software, Inc. has developed a solvency management system that is conceptually defined by twelve principles.

  1. Insurance premium must be managed at the policy level;
  2. Management of insurance premiums must start immediately after an insured is binded. It must end when the last premium dollar is received from insured and disbursed to the persons entitled thereto;
  3. Premium data records and premium accounting records must be identical. A unified system of premium data and accounting records must be the basis for premium solvency management;
  4. Complete accounting records must be created for all premium and return premium transactions;
  5. Management of premium funds must be separated from the management of business operating funds. Two different ledgers of accounts must be used, one for premium and return premium transactions, another one for transactions of operating funds;
  6. Return premiums must be treated as premium liabilities rather than negative receivable assets;
  7. Premium receipts must be managed until they are deposited in the trust bank account;
  8. Commission transfer out of the trust bank account must be conditional upon the bank deposit status;
  9. Premium remittance to insurance carriers must be conditional upon the premium receipts status;
  10. Cash balance of the trust bank account must be verified against the premium float determined by accounting methods not by the difference between bank deposits and disbursements;
  11. Solvency management must be fully automated to eliminate human errors;
  12. A uniform system of financial solvency reporting must be adopted in the P&C insurance industry so that producer agencies periodically generate solvency reports and save them for future reference. Auditors and regulators will be able to review them as needed and determine a producer agency’s past performance in complying with solvency statutory requirements.


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