Feldblum - Statutory Surplus

Question 1

Two methods to account for nonadmitted assets

Answer 1

#1 - Write off the nonadmitted asset as an expense
#2 - Classify the asset as nonadmitted and charge surplus directly

Question 2

Formula for cost of double taxation

Answer 2

Cost of double tax = Investment Yield * Corporate Tax Rate * (1 - Personal Tax Rate)

Question 3

Formula for margin needed on premium to account for double taxation

Answer 3

(yield * corp tax rate )/

(1 - corp tax rate) * premium * ( 1 + investment yield)^.5

Question 4

Atkinson and Dallas: Cost of holding capital

Answer 4

cost from double taxation + cost of investment constraints

Question 5

Invested Capital Used for Valuation of the Company

Answer 5

Surplus + Equity in the UEPR + Equity in the undiscounted reserves

• Deferred Tax Asset should be subtracted from this amount

Question 6

Equity in UEPR

Answer 6

UEPR * acquisition cost %

Question 7

Equity in undiscounted reserves

Answer 7

undiscounted reserve * discount rate

Question 8

2 definitions of surplus:

Answer 8

1. Balance Sheet definition: surplus = assets - liabilities

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

Question 9

Non admitted portion of Interest Due & Accrued:

Answer 9

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

Question 10

Non admitted portion of Accrued Retrospective Premium:

Answer 10

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

Question 11

Non admitted portion of Real Estate:

Answer 11

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