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

THE APPLICATION OF FUNDAMENTAL VALUATION PRINCIPLES 319DividendsPreferred Stocks 5.0%Common Stocks 2.0%Invested Asset and Cash DistributionTaxable Bonds 42.0%Non-taxable Bonds 24.0%Preferred Stocks 1.0%Common Stocks 25.0%Cash 5.0%Real Estate 1.0%Other 2.0%Total 100.0%Invested assets held at the beginning of a forecasted year willearn a full year of investment income based on the assumedyield percentages. Investment income is also earned on new cashgenerated by PSIC’s insurance operations. The financial modelassumes that cash from operations is collected and invested at themidpoint of each forecasted year. The collected cash is investedaccording to the distribution of invested assets and cash shownabove. Thus, the distribution is constant for all forecasted years.Cash flows from operations are shown in Exhibit 13. Premiumcollections, loss and LAE payments, and underwriting expensepayments are modeled for each line of business. Sheet 3 of Exhibits18, 19, and 20 shows the cash flow from underwriting foreach line of business, respectively. In addition to the premium,loss, LAE, and underwriting expense assumptions, the line ofbusiness underwriting cash flow relies on the following assumptions:² Loss and LAE payment patterns for each line of businessshown in Sheet 5 of Exhibits 18, 19, and 20, respectively. Thepayment patterns apply to reserves carried as of December