Insurance Company Valuation

Hello all,
I recently started valuing an insurance company, but I have little to no experience with insurance companies. I am looking into doing a DDM model for an insurance company but couldn't find the insurance company Statutory Capital & Surplus listed on its 10q. Could you please help me out with the formula for Statutory Capital & Surplus? Tried Googling it, didn't help much.

Comments (3)

 
Most Helpful
Jul 16, 2020 - 10:56pm

Would suggest you start with the investor supplements for the insurer you're looking to value and go from there. The supplements are GAAP and while they won't provide the financials of the company on an economic basis (statutory), they'll get you to where you need to go from a model build out perspective. Maybe you'll need to go into the Q or K to determine something more nuanced but honestly, the supplements will have earnings drivers laid out cleanly.

On your other question, I think you're looking for the formula for excess capital that uses the statutory statements. To get excess capital from statutory statements, you first need to determine the principal subsidiary structure ie which subs roll-up into other subs vs which subs are principal subs. The next steps are all done on a sub basis but rolled up into the holdco to determine excess.

From the stat statements, add together Capital and Surplus, Asset Valuation Reserve, 50% of Dividends Apportioned for Payment, the AVRs from the non-principal subs, and any dividends from non-principal subs. This will get you TAC. Next, multiply RBC-CAL from the stat statement by 2. TAC/RBC*2 = RBC ratio. Multiplying your RBC-CAL by RBC ratio minus the insurer's target RBC gets you to Excess capital prior to adjustments. You then adjust this excess capital by subtracting any intercompany loans (found in the K). This is your adjusted excess capital.

Next, add holdco cash and holdco short term loans. Then, subtract the holdco working capital requirement (usually found in an earnings deck) to get to excess capital at the holdco level. Add this to your adjusted excess capital to get your excess capital prior to pro forma adjustments (this can be considered final excess capital for the insurer).

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