The following summarizes the balance sheet and income statement for a property-casualty insurer. Numbers are in millions
Question:
The following summarizes the balance sheet and income statement for a property-casualty insurer. Numbers are in millions of dollars.
Net income of $848 million for 2009 come from the following to which taxes have been allocated.
Loss on underwriting activities, after tax..........$ 43
Investment income and realized gains on investments, after tax...891
In addition to net income in the income statement, unrealized losses on available-for-sale investments of $124 million were reported as part of other comprehensive income in the equity statement.
a. Calculate the residual income from under writing activities for 2009. Use beginning-of year balance sheet numbers in the calculation and a required return of 9 percent.
b. Value the equity under a forecast that the residual income from under writing will grow at 2 percent per year in thefuture.
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