Calculate the residual income from underwriting activities

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Reference no: EM131491210

Question: Valuing a Property-Casualty Insurer (Hard) The following summarizes the balance sheet and income statement for a property-casualty insurer. Numbers are in millions of dollars.

Net income of $848 million for 2012 comes from the following to which taxes have been allocated.

In addition to net income in the income statement, unrealized losses on available-for-sale investments of $124 million were reported as part of other comprehensive income in the equity statement.

a. Calculate the residual income from underwriting activities for 2012. Use beginning-of year balance sheet numbers in the calculation and a required return of 9 percent.

b. Value the equity under a forecast that the residual income from underwriting will grow at 2 percent per year in the future.

Reference no: EM131491210

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