Part 3.2 Feldblum: Surplus (***)

Question 1

Two Approaches to calculate current surplus

Answer 1

Balance Sheet Definition = Assets - Liabilities

Income Statement Definition = Prior Year’s Surplus + Current Year’s Income

Question 2

Balance Sheet Surplus Calculation

Answer 2

Admitted Assets - Liabilities

(Beginning Cash Balance + Change in Cash) - (Incurred loss - paid loss)

Question 3

Income Statement Surplus Calculation

Answer 3

Prior Year’s Surplus + Current Year’s Income

Net Income = Premium - loss - expenses

Nonadmitted assets due NOT impact the income statement, so do not affect surplus here with this formula

Question 4

Reconciliation of Balance Sheet and Income Statement Surplus

Answer 4

Surplus may not match. Need to adjust Income Statement formula with Income Statement Asset Exhibit.

Nonadmitted assets exhibit
- Col 1: Non admitted assets at end of current year
- Col 2: Non admitted assets at end of prior year
- Col 3: change for year (prior - current)

Question 5

Nonadmitted Assets effect on Surplus

Answer 5

Changes in nonadmitted assets with directly impact surplus

Question 6

Additional Examples of nonadmitted assets

Answer 6

> Interest due & accrued over 90 days overdue
10% of the unsecured accrued premium from retrospective policies that is due to the insurer
Real estate, permanent excess of book over the market value