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 & charge surplus directly.

Question 3

Non admitted portion of Interest Due & Accrued:

Answer 3

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

Question 4

Non admitted portion of Accrued Retrospective Premium:

Answer 4

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

Question 5

Non admitted portion of Real Estate:

Answer 5

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

Question 6

Equation for the cost of double taxation (after tax):

Answer 6

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

Question 7

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

Answer 7

• surplus
• equity in the unearned premium reserves
• equity in the undiscounted reserves
• Deferred Tax Asset should be subtracted from this amount.