TIA Section A - Feldblum: Surplus

Question 1

Two definitions of Surplus

Answer 1

1. Balance Sheet definition:

surplus = assets - liabilities

2. Income Statement definition:

surplus = prior year’s surplus + current year’s income

Question 2

Two accounting methods for non-admitted assets

Answer 2

Method 1: write off the non-admitted assets as an expense (in the income statement)

Method 2: classify the asset as non-admitted and charge surplus directly

Question 3

Non-admitted portion of interest due and accrued

Answer 3

Interest due and 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 non-admitted asset

Question 6

Equation for the cost of double taxation (after tax)

Answer 6

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

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 reserves not discounted

Deferred Tax Asset should be subtracted from this amount