Investment income and Realized vs unrealized capital gains
Is net investment income earned a combination of interest earned on bonds and stocks that were sold, or is it solely related to bonds? And am i missing any other components of investment income?
Does capital gains have to do solely with stocks? And is realized capital gain the money made from selling stocks and unrealized gain is just the difference between value of stocks now vs before the CY started, of which the stocks were not sold off yet?
Comments
They can both be based on stocks and bonds. Here is Odomirok explaining it, on page 45:
_Net investment income earned is primarily related to interest and dividends received on
investment assets held over the course of the year. Net investment income earned does not include changes to the prices of invested assets that are sold (those are included in net realized capital gain described below). Furthermore, it is recorded on an accrual basis, meaning that it is reflected in the year in which it is earned and not necessarily the year in which the actual cash related to the income is received. The amount of this income is shown net of investment expenses and other costs, but gross of federal income taxes, on the income statement.
Net realized capital gain (loss) generally results from the sale of investments for more or less than original cost, adjusted for the amortization of premiums or accretion of discounts (amortized cost). Realized losses also result from impairment adjustments. Certain investments (primarily common stock) are recorded at fair value. The changes in the value of these investments (unrealized gains (losses)) are not included as income and instead reflected as direct adjustments to surplus. These direct adjustments to surplus are necessary because these items do not flow through net income for the current period, but the surplus must still be adjusted to maintain the admitted assets equal liabilities plus surplus relationship._:
Perfect, thanks! I should have taken a look in Odom first but this really helps my understanding.
Sure, good luck.