Spring 2016 #22

JJJ

For a, is it bc we are not given non-tabular discount/tabular discount, therefore PHS = TAC?

graham

The short answer is that you can generally use surplus as an approximation to TAC. In this problem you aren't given any other information so that's all you can do.

A longer answer is that surplus approximates TAC for some companies better than others depending on the magnitude of other TAC for the specific company. Other components may include:

• Asset Valuation Reserve (AVR): This is an additional reserve established by insurers to account for potential fluctuations in the market value of their investment portfolio. The AVR is calculated based on the company's asset mix and risk profile.
• Conditional Reserve Amounts: These are reserves that insurance regulators may require a company to hold based on the specific risks they face. Examples include catastrophe reserves for property insurers and guaranty fund assessments for workers' compensation insurers.
• Other Adjustments: There may be additional adjustments required by regulators, depending on the company's specific circumstances. These adjustments could include factors like deferred tax assets, non-admitted assets, or other regulatory actions.

To refer to your original question:

• While tabular and non-tabular discounts do not directly impact the calculation of TAC, they do influence the policyholder surplus by adjusting the insurer's liabilities. This, in turn, affects the TAC, as statutory capital and surplus is a component of the overall calculation.

I would not expect an exam question to require calculation of TAC using such detailed components as tabular and non-tabular discounts.