2012 14a
Hi could you please explain how option 1 leads to deferred tax liability increase? I have a hard time understanding DTL.
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Hi could you please explain how option 1 leads to deferred tax liability increase? I have a hard time understanding DTL.
Comments
Option 1 is "maintain investment holdings." This means the capital gain is unrealized. Change in unrealized capital gains/loss is an item that's added to surplus. But it is first netted of capital gains tax before it's added to surplus. Because it is unrealized, the capital gains tax on it is actually deferred. So, change in unrealized capital gains increases surplus, while the DTL on it reduces surplus.
Thx. Appreciated
Sure, good luck.
In 3, could you please explain why paying stockholder dividends will decrease surplus.
This is how I think.
surplus = ... (blah blah)... - dividend to stockholders. Since stockholder's dividend gets paid, dividends in the formula decreased. Because it uses realized capital gain to pay dividends, decrease in realized capital gain negate the effect of decrease in dividends. So the surplus unchaged.
Could you please let me know if my thinking is correct?
Realized Capital Gains is a line item that increases net income and surplus. If you then pay out this gain in dividends, that in turn will decrease surplus.
But dividend to policyholders is a line item that decrease surplus. So if you pay out the gain from realized capital gains in dividends, it will decrease realized capital gains and dividend to policyholders. So isn't the effect negate each other?
These three are separate line items: realized capital gains, ph dividends and sh dividends. The actions on them may have negating effects, but each item will change individually, irrespective of the actions on other items. So, liquidating capital gains to pay sh dividends will give a negative value to sh dividend item, and thus reduce surplus, independent of the increase in surplus effected by the increase in realized capital gains item.