In this workout, we've been asked to calculate the own funds for an insurance company, and we've been given their detailed balance sheet information here. And along with that, we've been given the market value of their investments and tangible assets and also the market equivalent value of their insurance reserves. So what we're going to need to do is to identify the reconciling items that help us to get from the shareholders' equity shown here in the balance sheet to the own funds that the regulator will use in their calculations. Now to help us do this, we've got this little table here that will help us to reconcile things and we'll start off our reconciliation with the shareholders' equity and we can take that straight from our balance sheet above. Now, the first adjustment that we'll make is to exclude intangible assets, capitalized deferred acquisition costs, and deferred tax assets. And that's because the regulator assigns these a nil value because they'll be unlikely to have any value on liquidation of the company. So let's take out those items and we'll start off with intangibles, which are in row seven. Next, we'll take out the deferred tax assets and those are in row nine. And finally, the DAC asset, and that's in row 12. So that reduces our shareholders' equity by 5,000. Now, the next adjustments are to bring the asset and liability values closer to market values because remember that the regulator cares more about market values than accounting values. Now, we've been told the market values of the investments and tangible assets. We don't care about the intangible assets, DAC assets and deferred tax assets as those are now at nil value. But we're gonna assume that all the other remaining assets have book values which are close to market value. So we're just going to input the uplift in the investments and tangible assets here. So we start off by taking the market value of those assets And then we deduct the book value of those. So the investments, those are in row 10 and the tangible assets are in row eight.

Now, we can do exactly the same for our insurance provisions but this time, because it's a liability item, any uplifting value is going to be a negative adjustment. So we'll make the market equivalent value negative and then we'll add back the book value of the insurance provisions.

Now, the last adjustment we're going to make is to add in subordinated debt because remember that the regulator allows that to be included within own funds and we can just grab that straight from our balance sheet.

And now all we need to do is to sum all those items together and that gives us own funds of 16,000. Now, as is quite normal, the own funds is greater than shareholders' equity and that's even despite deducting the intangibles, the DAC assets and deferred tax assets. And that's because there's an overall uplift from the adjustment to market values, as well as the inclusion of subordinated liabilities in own funds.