Feldblum.Surplus

Updates COMPLETE: (for 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.

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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Study Tips

This reading is a good review of concepts already covered in Odomirok.6-7-BS and Odomirok.8-9-IS.

Estimated study time: 3 hours (not including subsequent review time)

BattleTable

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

• Problem Type: how to calculate whether to liquidate or continue operations - uses invested capital, PV(future income)
• 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	PV(future income): - calculate	shareholder preference: - liquidation/continuance
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

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!)

Alice-the-Actuary and Ian-the-Intern invested in an insurance company 5 years ago. They had been receiving regular dividend checks, but while they were on vacation last week in Key West, a psychic told them to beware of impending financial calamity. Based on this reliable advice, they decided to look more closely at this investment by calculating the invested capital and the present value of the future income.

Formula:    invested capital    =    S    +    ( % acq x UEP )    +    ( 1 - % disc ) x R    -    DTA

Formula:    PV(future income)    =    (pre-tax income)    x    ( 1 - % tax )    /    ( % CoC )

Based on the results, they will either want the company to liquidate or to continue operations. The notation and solution are given in the pdf below. [I will give a permanent shout-out to the first person to to email the correct answer to the BONUS QUESTION contained in the pdf. I will also give an honourable mention to all correct solutions. (email: info@battleacts.ca) ← This challenge has ended.]

Solution to 2018.Spring #12

Of course, this is just the exam problem:

E (2018.Spring #12)

Note that this problem was modeled on an example from p14 of Feldblum's paper in the section Valuation: Cost of Holding Capital.

A couple of miscellaneous things to finish up this section:

• ( % acq x UEP ) is also called → equity in the UEP
• ( 1 - % disc ) x R is also called → equity in undiscounted reserves

Recall that

• (% acq) = pre-paid acquisition cost
• (% disc) = discount factor for loss reserves
• R = undiscounted loss reserve.

mini BattleQuiz 1 You must be logged in or this will not work.

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).

mini BattleQuiz 2 You must be logged in or this will not work.

Full BattleQuiz You must be logged in or this will not work.

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