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Including Realized Gains in II/ 2007 Q26d (IASA2)

October 15th, 2011

2 topics that are raising a lot of questions:

1. When do we include Realized Capital Gains in Investment Income?

According to the AS Statement of Income,
Net investment GAIN = Net investment INCOME + realized cap gains.
Therefore, we can see that the GAIN includes realized gains, but INCOME excludes it.

2. 2007, Q26d; Why does the Provision for Reinsurance enter into the equation, but Treasury Stock is excluded… shouldn’t both be included because they are both direct changes to surplus?

The fact that these are both direct changes to surplus is irrelevant. In this question, we are just interested in the assets and liabilities:
-provision for reinsurance is a liability
-treasury stock is a component of surplus
Therefore only the provision is relevant

FYI. a change in assets/ liabilities OR surplus can result in a direct change to surplus — remember the definition is a transaction that causes an impact to the balance sheet but none to the income statement.

Angelo Uncategorized

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