1. Explain how regulators use the risk-based capital (RBC) method to evaluate an insurer’s capital.
2. You have 100,000 shares of $100 par, 9% dividend perpetual preferred stock oustanding. The current market price is $90. Any new issues of preferred stock would incure a $3.00 per share flotation cost. What is the cost of preferred stock?
3. Describe the benefit to insurers of issuing surplus notes to provide capital.