South Dakota Administrative Rules
Title 20 - PUBLIC SAFETY
Article 20:06 - INSURANCE
Chapter 20:06:30 - Life and health reinsurance
Section 20:06:30:08 - Agreements - Reporting of surplus increases

Universal Citation: SD Admin Rules 20:06:30:08
Current through Register Vol. 50, page 114, March 25, 2024

Any increase in surplus net of federal income tax resulting from arrangements described in § 20:06:30:07 must be identified separately on the insurer's financial statement required by SDCL 58-6-75 as a surplus item in aggregate write-ins for gains and losses in surplus in the Capital and Surplus Account, line 46, page 4 of the Annual Statement for the year ended December 31, 1994. Recognition of the surplus increase as income must be reflected on a net of tax basis in "Commissions and expense allowances on reinsurance ceded," line 5, page 4 of the Annual Statement for the year ended December 31, 1994, as earnings emerge from the business reinsured. See the examples at the end of this section.

General Authority: SDCL 58-14-17.

Law Implemented: SDCL 58-14-17.

Examples:

(1) 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 percent tax rate, the net increase in surplus at inception is $13.2 million ($20 million - $6.8 million) which is reported on page 4, line 46, "Aggregate write-ins for gains and losses in surplus" in the Capital and Surplus Account of the Annual Statement for the year ended December 31, 1994. $6.8 million (34% of $20 million) is reported as income on page 4, line 5, of the "Commissions and expense allowances on reinsurance ceded," line 5, of the Summary Operations of the Annual Statement for the year ended December 31, 1995.

(2) At the end of year N+1, the business has earned $4 million. Company 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 page 4, line 5, of "Commissions and expense allowances on reinsurance ceded," of the Summary of Operations of the Annual Statement for the year ended December 31, 1994, and - $1.65 million on page 4, line 46, on "Aggregate write-ins for gains and losses in surplus," of the Capital and Surplus Account of the Annual Statement for the Year Ended December 31, 1994. The experience refund would be reported separately as a miscellaneous income item in the Summary of Operations of the Annual Statement for the year ended December 31, 1994.

Life, Accident & Health Annual Statement for the Year Ended December 31, 1994, page 4. National Association of Insurance Commissioners. Copies may be obtained from the South Dakota Division of Insurance, 124 South Euclid Avenue, 2nd Floor, Pierre, SD 57501-2000, (605) 773-3563. Cost: $.75 a page.

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