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Capital Contribution to Sub Using Cash and Bonds
Hello,
I would concur with your interpretation of the guidance in SSAP 25, by using paragraphs 15,18 &19 for your set of circumstances SSAP 25 excerpt par.18 &19 and 15 states: Transactions involving services between related parties must be recorded at amount charged ( 18, 19) Amounts charged can be at current market rates or based on allocations of costs Subject to regulatory scrutiny when amounts charged do not meet fair and reasonable standards of Appendix A-440 Insurance Holding Companies ♦ Could be either treated as dividends or capital contributions, reversed, modified or nonadmitted Transactions between related parties may qualify as economic transactions at one level of financial reporting but may not qualify at common parent level ( 15) Purchase of securities at fair value between affiliates would be considered economic transaction ♦ Seller would recognize any gain or loss on disposal ♦ Buyer would record securities received at cost (fair value on transaction date) Common parent would treat transaction as non-economic when it results in gain ♦ Regulators see it as mere inflation of surplus at common parent level ♦ Common parent must record deferred gain and unrealized loss (to offset unrealized gain on investment in subsidiary) until these securities are sold to outside third party in arms-length transaction Regards, Glenn S Sackett
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Glenn Sackett Booke Seminars Life Instructor |
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