by John Darer CLU ChFC MSSC CeFT RSP CLTC
What Does Insurance Company Surplus Mean?
- Surplus equals Admitted Assets minus Liabilities.
- Surplus represents the net worth of an insurer.
- Surplus is one view of a life insurance company's health.
- Structured settlement annuities are issued by life insurance companies.
- Surplus is one indicator of an insurance company’s financial health. It gives an insurance company another source of funds, in addition to its reserves and reinsurance, if it needs to pay a higher than expected amount of claims.
Think of surplus is a Rainy Day Fund, for the Rainy Day Fund (reserves)
What Are Insurance Company Reserves?
The purpose of the reserve requirement is to ensure that if a catastrophic event were to happen, with a large percentage of policyholders affected, the company would have enough money to meet the claims.
A few articles that may be helpful for a deeper dive into reserves
Principle-Based Reserving: A New Way to Insure for Life | American Academy of Actuaries
- Generally there are two minimum requirements for insurers – minimum capital requirement and initial free surplus.
- The minimum capital requirement is the bare minimum surplus you can ever have.
- The initial free surplus is the safety buffer you have to have when starting a new company.
Each state will have its own solvency regulation [see Statutory Minimum Capital & Surplus Requirements, from the Uniform Certificate of Authority Applications, National Association of Insurance Commissioners (NAIC) 2024]. Insurers are also subject to rosk based capital requirements.
For example here are the minimum capital and surplus requirements for life insurers in CONNECTICUT:
CAPITAL SURPLUS MUTUAL SURPLUS
Life insurance $1,000,000 $2,000,000 $3,000,000
(12/09) CGS §38a-72, Reg. 38a-72-1 to 38a-72-13
What is the Life Actuarial Task Force of the National Association of Insurance Commissioners (NAIC)?
The NAIC’s Life Actuarial (A) Task Force was formed to identify, investigate and develop solutions to actuarial problems in the life insurance industry. Work to keep reserve, reporting, and other actuarial-related requirements current.
Surplus of Structured Settlement Annuity Issuers as a % of general account assets [as of Year End 2023 Source: Vital Signs Suite/Ebix Exchange]
American General Life Insurance Co, 7.5%
Metropolitan Life Insurance Co. 6.1%
Metropolitan Tower Life Insurance Co. 7.6%
New York Life Insurance Company 13.5%
Pacific Life Insurance Company 10.7%
Prudential Insurance Company of America 12.3%
United of Omaha Life Insurance Company 7.8%
USAA Life Insurance Company 10.5%
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Last updated November 27, 2024