Statutory Net Income vs Statutory Income

Just want to make sure I got this right...

Statutory Income = Statutory Net Income, and the only difference is in how you arrive at those values, right? Because it depends on what you're given.

So for Statutory Income... you simply add up UW Inc + Inv Inc + Other Inc - PH dvnds - Fed/Foreign incurred taxes

and to solve for Statutory Net Income... you'll be given Current/Prior Surplus values and have to back into Statutory Net Income.

Did I get that right?

I thought I had this straight, but I've been reading a few sources and for a quick sec thought one of the Statutory [Net] Income formulas ignored the removal of PH dividends & fed/foreign taxes... but that doesn't sound right.

Thanks in advance!


  • What you're saying is pretty much correct but I would say part of it a little differently.

    On an insurer's financial statements, statutory income and statutory net income are (as you said) the same thing. There is no line item for anything called statutory gross income. I suppose for example you could think of the earned premiums as being "gross income" then when you subtract the losses and other things, you get "net income" but it isn't labelled like that.

    The 3 main categories of income on the income statement are U/W income, Investment Income, and Other Income (lines 8, 11, 15) and are summed (and then adjusted for PH dividends and fed/foreign taxes) to get Net Income on line 20. And this Net Income is the same thing as Statutory Net Income because it's an insurer and it doesn't matter how it is calculated.

    What you're describing in your question are just 2 different ways of getting the Statutory Net Income. I think you're reading too much into the slight difference in wording (Statutory Income versus Statutory Net Income.)

    • Method 1: If you're given all the income statement line items, you can just add/subtract each item as appropriate to get the final answer.

    This is similar to how you have to solve 2018.Spring Q10 although there's a twist because you have to calculate Losses Incurred as (current AY loss) + (change in prior years' AY loss). This seems to be what you're describing as Statutory Income.

    • Method 2: This other method involves, as you said, backing into the Statutory Net Income starting with current & prior year surplus.

    This is similar to 2017.Fall Q9. Note that you are calculating the same thing as in the other problem but you are given different information so your solution will also be different. (Either method must include all the same pieces including PH dividends and fed/foreign taxes even if the way you get to the final answer looks different.)

    In the wiki, I sometimes just use the term Statutory Income without saying "net" when I want to refer generically to the separate components U/W, Investment, and Other Income. Those components are all "Statutory" because they are for an insurer but are not technically "Net". The final "Net" amount is the total of these components.

    I hope that address your question. Otherwise let me know.

  • Sure does. Will stop overthinking! Thanks, Graham!

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