HAR §16-20-4. subsequent amendments, within thirty days from the date of execution

Each filing shall include a detailed description of the financial impact of the transaction. The actuary who signs the ceding insurer’s actuarial opinion with respect to valuation of reserves shall consider this chapter and any applicable actuarial standards of practice when determining the proper credit in financial statements filed with the commissioner. The actuary shall maintain adequate documentation and shall, upon request by the commissioner, describe the actuarial work performed for inclusion in the financial statements and shall demonstrate that the work conforms to the requirements of this chapter. Any increase in surplus net of federal income tax resulting from arrangements described in this subsection shall be identified separately on the insurer’s statutory financial statement as a surplus item (aggregate write-ins for gains and losses in surplus in the capital and surplus account, page four of the annual statement) and recognition of the surplus increase as income shall be reflected on a net of tax basis in the "reinsurance ceded" line of the annual statement as earnings emerge from the business reinsured. For example, on the last day of calendar year N, company XYZ pays a $20,000,000 initial commission and expense allowance to company ABC for reinsuring an existing block of business. Assuming a thirty-four per cent tax rate, the net increase in surplus at inception is $13,200,000 ($20,000,000 - $6,800,000) which is reported as income on the "commissions and expense allowance on reinsurance ceded" line of the summary of operations. At the end of year N+1 the business has earned $4,000,000. ABC has paid $500,000 in profit and risk charges in arrears for the year and has received a $1,000,000 experience refund. ABC’s annual statement would report $1,650,000 (sixty-six per cent of ($4,000,000 - $1,000,000 - $500,000) up to a maximum of $13,200,000) on the "commissions and expense allowance on reinsurance ceded" line of the summary of operations, and $1,650,000 on the "aggregate write-ins for gains and losses in surplus" line of the capital and surplus account. The experience refund would be reported separately as a miscellaneous income item in the summary of operations. [Eff 3/19/94] (Auth: HRS §§431:2-201, 431:4A- 104) (Imp: HRS §431:4A-101)