Adjusted Surplus

  

Just like banking requirements, insurance companies have to keep a certain amount of money in reserves in case they have a multi-hurricane year, for example, with a lot of payouts. Adjusted surplus is basically what’s left over when you subtract their assets (cash and accounts receivable, etc.) from their liabilities (accounts payable, etc.)

The surplus grows from yearly operating profits and gains from its investments, where the money is then put into the reserves account. So when a hurricane like Katrina in New Orleans hits with billions of dollars of claims to be paid, the surplus is going to take a dive. Insurance companies will most likely raise premiums the following year in order to build up the reserves again. The higher the adjusted surplus, the better the financial health of the company.

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