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

316 THE APPLICATION OF FUNDAMENTAL VALUATION PRINCIPLESof a statutory asset or liability for deferred taxes. Even withoutthese items, the financial model results provide significantinsight into the considerations and calculations for valuing aproperty/casualty insurance company. Second, the GAAP balancesheet and income statements are provided for the interestedreader. The GAAP results are not discussed in the text becausethe valuation estimate relies exclusively on amounts computedusing statutory accounting.Exhibit 11 is the detailed statutory balance sheet for PSIC.The “Actual 2001” column shows amounts from PSIC’s December31, 2001, statutory Annual Statement. Balance sheet itemsare either the sum of amounts from individual lines of businessor for PSIC in total. Investment and cash amounts, items (1a)through (1g) and the Total Investments and Cash subtotal, arenot segregated by line; neither are capital and surplus.The remaining assets (receivables) and liabilities (payablesand loss, LAE, and unearned premium reserves) are the sums ofindividual line of business amounts. In this example, PSIC wroteand continues to write three lines of business: workers compensation,auto liability, and general liability, all on a primary basis.Exhibits 18, 19, and 20 show the December 31, 2001, balancesheet amounts and business assumptions for the workers compensation,auto liability, and general liability books of business,respectively.The largest single balance sheet item from the line of businessdata is the net loss and ALAE reserve. Sheet 6 for Exhibits 18,19, and 20 show the loss and LAE reserves as of December 31,2001, for accident years 2001 and prior for each line of business.Sheet 5 for each line of business shows the payment patterns forthe respective 2001 balance sheet reserve amounts.Sheet 4 for Exhibits 18, 19, and 20 shows the other balancesheet items associated with each line of business as of December31, 2001.