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