Roth's Required Return on Surplus (Goldfarb Questions 5 and 6)

In Question 5, Goldfarb gives us the growth rates for claim inflation, aggregate reserves, and demand for insurance, which when summed properly gives us 9% for the required surplus growth. To get the required return on surplus, Goldfarb then adjusts the 9% for dividends (2.4%) and paid-in surplus (1.5) to get 9.9%. He notes this is true for stock insurers but for mutual insurers the required return on surplus would just be 9%.



Why isn't it:

Req'd ROS for Stock Insurers = Required Surplus growth + Dividend % (

(i.e. excluding the paid-in surplus)



Perhaps I have forgotten some basic Exam 6 concepts on dividends and paid-in surplus, so apologies if I have.

Roth's Required Return on Surplus (Goldfarb Questions 5 and 6)