§ 162.6. Statutory financial reporting requirements.
An increase in surplus net of Federal income tax resulting from arrangements described in § 162.5 (relating to agreements to be filed with Commissioner) shall be identified separately on the insurer’s statutory financial statement as a surplus item (aggregate write-ins for gains and losses in surplus in the capital and surplus account) and recognition of the surplus increase as income shall be reflected on a net of tax basis in the ‘‘reinsurance ceded’’ line of the Annual Statement as earnings emerge from the business reinsured.
For example: On the last day of calendar year N, company XYZ pays a $20 million initial commission and expense allowance to company ABC for reinsuring an existing block of business. Assuming a 34% tax rate, the net increase in surplus at inception is $13.2 million ($20 million - $6.8 million) which is reported on the ‘‘Aggregate write-ins for gains and losses in surplus’’ line in the Capital and Surplus account. $6.8 million (34% of $20 million) is reported as income on the ‘‘Commissions and expense allowances on reinsurance ceded’’ line of the Summary of Operations. At the end of year N+1 the business has earned $4 million. ABC has paid $.5 million in profit and risk charges in arrears for the year and has received a $1 million experience refund. Company ABC’s annual statement would report $1.65 million (66% of (4 million - $1 million - $.5 million) up to a maximum of $13.2 million) on the ‘‘Commissions and expense allowance on reinsurance ceded’’ line of the Summary of Operations, and -$1.65 million on the ‘‘Aggregate write-ins for gains and losses in surplus’’ line of the Capital and Surplus account. The experience refund would be reported separately as a miscellaneous income item in the Summary of Operations.
No part of the information on this site may be reproduced for profit or sold for profit.
This material has been drawn directly from the official Pennsylvania Code full text database. Due to the limitations of HTML or differences in display capabilities of different browsers, this version may differ slightly from the official printed version.
