PROCEEDINGS May 15, 16, 17, 18, 2005 - Casualty Actuarial Society

292 THE APPLICATION OF FUNDAMENTAL VALUATION PRINCIPLESa much smaller component of the total portfolio and thus theadjustments are likely to have a smaller impact on the adjustednet worth.3. Inclusion of nonadmitted assetsSome states do not admit certain assets on the statutory balancesheet because they either do not conform to the laws andregulations of the state or are not readily convertible to liquidassets. Exclusion from the balance sheet results in a charge tostatutory equity. For the purpose of a valuation, however, oneshould include any portion of nonadmitted assets that has financialvalue and may be convertible to cash.Examples of nonadmitted assets include² Agents’ balances overdue by 90 days or longer;² Bills receivable that have not been taken for premium;² Furniture, equipment (other than electronic data processing(EDP) equipment and software), and supplies; and² Leasehold improvements.In some cases, there may be overlap with the adjustment ofassets to market value. For example, when the market value ofreal estate is below its net book value, the excess of book overmarket value is recorded as a nonadmitted asset while the admittedasset, which underlies the amount of statutory surplus, isequal to the market value. Care should be taken to ensure thatthere is no double counting.4. Accounting goodwillSAP for purchases defines goodwill as the difference betweenthe cost of acquiring a subsidiary, controlled, or affiliated entityand the purchaser’s share of the book value of the acquired entity.Positive goodwill exists when the cost of the acquired entity isgreater than the purchaser’s share of the book value. Accordingto codified SAP, however, positive goodwill from all sources is