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 2012 comes 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 underwriting activities for 2012. 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 underwriting will grow at 2 percent per year in the future.

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Balance Sheet 2012 2011 Operating assets associated with underwriting Unpaid claims and unearned premiums $2,450 5,300 (2,850) $2,300 Net operating assets in underwriting activities Investments in debt and equity securities, at market Common equity (3,300) 5,940 3,200 2,640