WHAT IS A 'Benchmark Surplus'

Benchmark surplus is an insurance term that refers to the amount of surplus from an additional capital source, which necessarily acts as a supplement to the company's cash flow.

BREAKING DOWN 'Benchmark Surplus'

Benchmark surplus would be required when unforeseen contingencies occur that could disrupt or impair the cash flow necessary for an insurance company to make future benefit payments for which it has already received the premiums.

Benchmark surplus refers to any needed additional equity or surplus beyond what is currently held by an insurance company or industry. Equity refers to the value of an asset, and benchmark surplus includes the liquid assets required in addition to those currently currently held, that an insurance company would need to cover additional benefit claims.

In other words, when unforeseen obstacles, such as clerical errors or difficulties processing premium payments, disrupt the cash flow required to make future benefit payments by an insurance company, the additional flow, known as the benchmark surplus, is used.

Benchmark Surplus vs. Capital Surplus

Benchmark surplus and capital surplus are similar concepts with a few key differences. Benchmark surplus is an insurance term used to refer to the additional equity or capital a company may tap into when dealing with a decrease in cash flow. A capital surplus refers to equity or net worth otherwise not classifiable as capital stockMost commonly, it arises when a corporation issues common stock and sells it for more than the par value of the stock, which is also called a premium.

Capital surplus can be created in a number of ways including from stock issued at a premium or stated value, from the proceeds of stock bought back and then resold again, from a reduction of par value or reclassification of capital stock, from donated stock or from the acquisition of companies that have capital surpluses. Par value is the original price at which a company's shares were initially offered for sale. Capital stock can serve as an umbrella term for more specific classifications such as acquired surplus, additional paid-in capital, or donated surplus.

For example, say a company sells 100 shares of its $1 par value stock for $9 per share, it would record $100 of the $900 in total proceeds in the common stock account, and $800 in the capital surplus account.

Capital refers to anything that generates income, such as financial assets or their financial value, as well as the tangible factors of production. Capital comes in many forms, like currency, equipment, land or even people.

  1. Capital Surplus

    Capital surplus is equity which cannot otherwise be classified ...
  2. Surplus

    Surplus is the amount of an asset or resource that exceeds the ...
  3. Budget Surplus

    A budget surplus is a situation in which income exceeds expenditures. ...
  4. Adjusted Surplus

    Adjusted surplus is one indication of an insurance company's ...
  5. Current Account Surplus

    A current account surplus is a positive current account balance, ...
  6. Policyholder Surplus

    Policyholder surplus are assets of a mutual insurance company ...
Related Articles
  1. Investing

    What's the Balance of Trade?

    The balance of trade is the difference between the value of all the goods and services a country exports and the goods and services it imports.
  2. Financial Advisor

    5 Companies Benefiting From Germany's Record Surplus

    A weaker euro is boosting German exports, which have led to a record trade surplus. Here are five German companies reaping the benefits.
  3. Investing

    OPEC Reports First Budget Deficit in 18 years

    OPEC budget swings to $99.6 billion deficit in 2015 from $238.1 billion surplus as oil plunges
  4. Insurance

    How To Invest In Insurance Companies

    Knowing the special circumstances that insurance companies operate under helps in evaluating whether or not a listed insurance company is a good investment and whether the economic environment ...
  5. Investing

    What is a Share Premium Account?

    The share premium account is an equity account found on a company’s balance sheet.
  6. Investing

    Benchmark To Show Winning Returns

    You can't win if you don't keep score. Read on to learn how to measure your returns.
  7. Managing Wealth

    Issued share capital versus subscribed share capital

    Learn the difference between issued share capital versus subscribed share capital. Get information about various types of capital.
  8. Insights

    Is Germany Carrying The European Economy?

    Germany has been widely viewed as the economic catalyst and stabilizer for the European Union and for good reason.
  9. Investing

    Analyze cash flow the easy way

    Learn the key components of the cash flow statement, how to analyze and interpret changes in cash, and what improved free cash flow means to shareholders.
  1. How can an investor evaluate the leverage of an insurance company?

    Learn about insurance leverage, what leverage means in the context of insurance companies and what metrics investors should ... Read Answer >>
  2. What is the difference between the current account and the capital account?

    Learn how to differentiate between the capital account and the current account, the two components of the balance of payments ... Read Answer >>
  3. What's the difference between the current account and the capital account?

    Both accounts relate to the balance of payments of a nation. One considers goods and services currently produced, the other ... Read Answer >>
  4. Par Value Stock vs No Par Value Stock

    Understand the difference between par and no par value stock and how this differentiation affects corporate liabilities and ... Read Answer >>
  5. Par value vs market value

    Learn about the difference between the par value and market value of financial securities, including the role they play in ... Read Answer >>
  6. How should you view a balance of payments deficit?

    Discover how it might be possible to run a balance of payments deficit, what causes them in international trade, and whether ... Read Answer >>
Trading Center