Feldblum.Surplus

Reading: Statutory Surplus: Computation, Pricing and Valuation,” CAS Study Note, June 2003, pp. 1-10, including errata. Candidates are not responsible for the endnotes.

Author: Feldblum, S.

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BA Quick-Summary: Feldblum - Surplus This paper dives into how insurance companies price their products, specifically looking at the differences between statutory surplus and invested capital. It explains how different accounting methods can change the reported financial health of a company. Through examples, it shows how premiums, expenses, and investments are recorded and how these affect the company’s financial statements.

Study Tips

This reading is a good review of concepts already covered in Odomirok.6-7-BS and Odomirok.8-9-IS. Given the removal of material on pages 11-16 as described below, there isn't anything here that isn't already covered in the Odomirok text on Financial Reporting.

Updates in Fall 2023 The only syllabus change for 2023-Fall is the pages you're responsible for: → Previously you had to study the entire reading, pp. 1-16 → Currently you only have to study pp. 1-10 The material on double-taxation on pp. 11-16 has been removed and this was a a substantial portion of the testable material so this is now a much easier reading to study. The material from pp. 1-10 is covered in Odomirok.6-7-BS and Odomirok.8-9-IS so this Feldblum reading provides a good review.

Estimated study time: 2 hours (not including subsequent review time)

BattleTable

Based on past exams, the main things you need to know (in rough order of importance) are:

• miscellaneous items from related chapters (see footnotes to BattleTable)

reference	part (a)	part (b)	part (c)	part (d)
E (2018.Spring #12)	invested capital: - calculate x	PV(future income): - calculate x	shareholder preference: - liquidation/continuance x
E (2017.Spring #15)	surplus: - calculate 3	impact on surplus/income: - ABs 2 → 90 days past due
E (2015.Spring #12)	statutory income: - calculate 1	reserve adequacy: - supporting exhibits

^x This type of calculation problem is no longer on the syllabus.

¹ This is a good review of the statutory net income material from chapters 8 & 9 of Odomirok.

² AB's refers to: uncollected premiums and Agents’ Balances in the course of collection

³ Recall from chapter 6 of Odomirok that another way to calculate surplus is to calculate assets MINUS liabilities. But this means you have to be good at recognizing which line items are assets MINUS liabilities and which are neither. (You can learn this by practicing the location quiz from quiz #2 available here).

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In Plain English!

Review: Balance Sheet and Income Statement

The exam problems in quiz #3 below are a good review of Odomirok material that you've already covered. Make sure to pay attention to the footnote under the BattleTable. I've copied it below:

• Recall from chapter 6 of Odomirok that another way to calculate surplus is to calculate assets MINUS liabilities. But this means you have to be good at recognizing which line items are assets, which are liabilities and which are neither. (You can learn this by practicing the location quiz from quiz #2 available here).

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Problem Type: Liquidate or Continue Operations

This section has been removed from the syllabus starting 2023-Fall (shout-out to MM!)