<html> <head> <title>Rule 20:06:30:08 Agreements -- Reporting of surplus increases.</title> <META NAME="Keywords" Content="Administrative Rules 20:06:30:08"> <META NAME="Description" Content="Administrative Rules 20:06:30:08 Agreements -- Reporting of surplus increases."> <meta http-equiv=Content-Type content="text/html; charset=windows-1252"> <meta name=Generator content="Microsoft Word 14 (filtered)"> <style> <!-- /* Font Definitions */ @font-face {font-family:Calibri; panose-1:2 15 5 2 2 2 4 3 2 4;} /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {margin-top:0in; margin-right:0in; margin-bottom:0in; margin-left:-.7pt; margin-bottom:.0001pt; text-align:justify; font-size:12.0pt; font-family:"Times New Roman","serif";} /* Page Definitions */ @page WordSection1 {size:8.5in 11.0in; margin:49.7pt 63.35pt 49.7pt 1.0in;} div.WordSection1 {page:WordSection1;} --> </style> </head> <body lang=EN-US> <div class=WordSection1> <p class=MsoNormal style='margin-left:0in'><a name="_GoBack"></a>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>20:06:30:08.&nbsp;&nbsp;Agreements -- Reporting of surplus increases.</b> Any increase in surplus net of federal income tax resulting from arrangements described in &#167;&nbsp;20:06:30:07 must be identified separately on the insurer's financial statement required by SDCL <A HREF="/statutes/DisplayStatute.aspx?Type=Statute&Statute=58-6-75">58-6-75</A> as a surplus item in aggregate write-ins for gains and losses in surplus in the Capital and Surplus Account, line 46, page 4 of the Annual Statement for the year ended December 31, 1994. Recognition of the surplus increase as income must be reflected on a net of tax basis in &quot;Commissions and expense allowances on reinsurance ceded,&quot; line 5, page 4 of the Annual Statement for the year ended December 31, 1994, as earnings emerge from the business reinsured. See the examples at the end of this section.</p> <p class=MsoNormal style='margin-left:0in'>&nbsp;</p> <p class=MsoNormal style='margin-left:0in'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>Source:</b> 22 SDR 52, effective October 25, 1995; 42 SDR 52, effective October 13, 2015.</p> <p class=MsoNormal style='margin-left:0in'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>General Authority:</b> SDCL <A HREF="/statutes/DisplayStatute.aspx?Type=Statute&Statute=58-14-17">58-14-17.</A></p> <p class=MsoNormal style='margin-left:0in'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>Law Implemented:</b> SDCL <A HREF="/statutes/DisplayStatute.aspx?Type=Statute&Statute=58-14-17">58-14-17.</A></p> <p class=MsoNormal style='margin-left:0in'>&nbsp;</p> <p class=MsoNormal style='margin-left:0in'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>Reference:</b> <b>Life, Accident &amp; Health Annual Statement for the Year Ended December 31, 1994</b>, page 4. National Association of Insurance Commissioners. Copies may be obtained from the South Dakota Division of Insurance, 124 South Euclid Avenue, 2<sup>nd</sup> Floor, Pierre, SD 57501-2000, (605) 773-3563. Cost: $.75 a page.</p> <p class=MsoNormal style='margin-left:0in'>&nbsp;</p> <p class=MsoNormal style='margin-left:0in'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Examples:</p> <p class=MsoNormal style='margin-left:0in'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (1)&nbsp;&nbsp;On the last day of calendar year N, company XYZ pays a $20 million initial commission and expense allowance to company ABC for reinsuring an existing block of business. Assuming a 34 percent tax rate, the net increase in surplus at inception is $13.2 million ($20 million - $6.8 million) which is reported on page 4, line 46, &quot;Aggregate write-ins for gains and losses in surplus&quot; in the Capital and Surplus Account of the Annual Statement for the year ended December 31, 1994. $6.8 million (34% of $20 million) is reported as income on page 4, line 5, of the &quot;Commissions and expense allowances on reinsurance ceded,&quot; line 5, of the Summary Operations of the Annual Statement for the year ended December 31, 1995.</p> <p class=MsoNormal style='margin-left:0in'>&nbsp;</p> <p class=MsoNormal style='margin-left:0in'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (2)&nbsp;&nbsp;At the end of year N+1, the business has earned $4 million. Company ABC has paid $.5 million in profit and risk charges in arrears for the year and has received a $1 million experience refund. Company ABC's Annual Statement would report $1.65 million [66% of ($4 million - $1 million - $.5 million), up to a maximum of $13.2 million] on page 4, line 5, of &quot;Commissions and expense allowances on reinsurance ceded,&quot; of the Summary of Operations of the Annual Statement for the year ended December 31, 1994, and - $1.65 million on page 4, line 46, on &quot;Aggregate write-ins for gains and losses in surplus,&quot; of the Capital and Surplus Account of the Annual Statement for the Year Ended December 31, 1994. The experience refund would be reported separately as a miscellaneous income item in the Summary of Operations of the Annual Statement for the year ended December 31, 1994.</p> <p class=MsoNormal style='margin-left:0in'>&nbsp;</p> </div> </body> </html>