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An insurance company reported the following balance sheet at year end for 2009 (all amounts are...

An insurance company reported the following balance sheet at year end for 2009 (all amounts are in millions of dollars)

Assets

Investments $1500

Insurance assets 300

Total 1800

Liabilities and equity

Insurance claims 700

Unearned premiums 140

Long-term debt 150

Equity 810

Total 1800

Investments are available-for-sale securities marked to market.

The company reported the following income statement for 2010

Premium revenue 365

Investment income 60

Realized gains on investments 80

Total revenue 505

Insurance losses and expenses 405

Net income 100

In addition, the company reported $65 million in unrealized losses on investments as part of other comprehensive income in its equity statement

Ignore taxes in answering the following question:

  1. What was the rate of return earned on investments for 2010?
  2. Calculate net operating assets in the insurance underwriting part of the business at the end of 2009.
  3. Calculate both the earnings and residual earnings from the insurance underwriting part of the business for 2010. Use a required return rate of 9% for this calculation

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jeff jeffy answered 1 year ago
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