A11. Feldblum:Surplus

Question 1

2 definitions of surplus

Answer 1

1. Balance Sheet definition: surplus = assets - liabilities

2. Income Statement definition: surplus = prior years surplus + current year’s income

Question 2

2 Accounting Methods for Nonadmitted assets

Answer 2

1. Method 1: write off the nonadmitted assets as an expense (in the income statement)
2. Method 2: classify the asset as nonadmitted and charge surplus directly.

Question 3

Non admitted portion of Accrued Retrospective Premium

Answer 3

10% of the unsecured Accrued Retrospective Premium is non admitted.

Question 4

Non admitted portion of Interest Due and Accrued

Answer 4

Interest Due and Accrued over 90 days overdue is a non admitted asset.

Question 5

Equation for the cost of double taxation (after tax)

Answer 5

Investment yield * corporate tax rate * (1 - personal tax rate)

Question 6

Non admitted portion of Real Estate

Answer 6

The permanent excess of book over the market value is a nonadmitted asset

Question 7

Equation to derive total amount of capital which is subject to the cost of holding capital

Answer 7

Sum of:

• surplus
• equity in the unearned premium reserves
• equity in the undiscounted reserves

Deferred Tax Asset should be subtracted from this amount.

Question 8

Margin needed on premiums

Answer 8

Yield*53.85%

Question 9

Margin as % of premium

Answer 9

(Capitalinvestment yield53.85%)/premium

Question 10

Premiums inception, taxes mid year

Answer 10

(Capitalinvestmentyield53.85%)/(premium*[1+investment yield]^0.5)

Question 11

Atkinson and Dallas

Answer 11

Reflect cost to insurer of investing in safer investments. Equal to the difference it what could earn had they invested in higher yielding equity and what they are currently earning.