Exhibit of Nonadmitted Assets and Income Statement

[JasonScandopolous]

Originally Posted by JasonScandopolous

This is kind of ridiculous that they had to do this, as far as I can tell.

Travelers has set up a segregated amount of surplus on the balance sheet, and the amounts segregated as such have increased by $13,301,057 this year (difference in line 2901 on page 3). Since surplus is admitted by definition, all of this change in assets is admitted.

On the income statement, we see an increase in non-admitted assets of $80,640,507 (even though the number is negative, it is due to an increase in non-admitted assets). We see an increase in special surplus, and we have seen that the net of the two numbers equals the -67,339,450 on the Nonadmitted Asset Page.

So why is this ridiculous? Because Travelers' income statement (on their own volition or more likely due to odd SAP guidelines) had to take a change in how ADMITTED assets were classified in their surplus, arbitrarily add it to the change in non-admitted assets, and then cancel it out via a special write-in.

It seems to me that it would have made more sense to simply list the -67M on line 27 of the income statement and not include the write-in at all. Then again, I don't understand why you'd set up a special surplus for deferred taxes in the first place, so who knows why they did what they did.

I researched why they had to add this line. Somewhere in the syllabus last year, it said that you were allowed to admit 1 year of loss carryforwards for federal income tax purposes in addition to other criteria; amounts of loss carried forward from earlier years were nonadmitted. SAP was changed in either 2010 or 2011 to allow up to three years of loss carryforwards to be admitted. The increase in admitted assets caused by this new rule is to be put in the Special Surplus Funds write-in.

So, NAIC allows companies to admit more deferred taxes than they used to, but they still have to pretend that they are non-admitted in certain exhibits (and then cancel them out later with write-ins). I'd guess the point of this is to make it easy to separately track the benefit of this accting rule change.

[JasonScandopolous]

Originally Posted by Mel-o-rama

I bet Traveler's knows why they did what they did. Either the company I work for now (or my last company) did something similar with a write-in. I asked "why don't these two numbers match?" And my boss explained to me that someone wanted to see a specific number separated out for whatever reason.

As an exam taker, it's only important to realize that what Travelers did is allowable.

Well it was a lazy, but convenient, way for the NAIC to do this. They wanted this information but didn't want to have a separate data request or exhibit. But now they have a nonadmitted assets line on the income statement that is incorrect. Oh well.

FYI my info on why they had to do this came from here, in the off chance that >0 people care: link

[Mel-o-rama]

Originally Posted by JasonScandopolous

Well it was a lazy, but convenient, way for the NAIC to do this. They wanted this information but didn't want to have a separate data request or exhibit. But now they have a nonadmitted assets line on the income statement that is incorrect. Oh well.

FYI my info on why they had to do this came from here, in the off chance that >0 people care: link

Agree with your assessment of the funky way of accomplishing this. And thanks for digging deeper. If this is something that's on the syllabus, I'll take all the help I can get, and any knowledge = better chances of passing the exam.