Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Jukka Lipponen - Keefe, Bruyette & Woods.
Jukka Lipponen - Keefe, Bruyette & Woods
To whatever extent you can, can you give us additional color in terms of what are the auditor’s specific concerns that basically they’re worried that the investment losses going forward could overshadow your operating earnings and hence make you violate your covenants?
Claude James Prieur
Yes, sure. The issues are liquidity at the holding company and concerns about potential losses in the investment portfolio. For liquidity, I think if you turn to Slide 15, you can see, you know, its liquidity at the holding company that they’re concerned about. The insurance companies of course have a lot of liquidity. The concern is that some of the dividends and the surplus note interest that are shown on the chart are subject to regulatory approval. So they are somewhat reluctant to count them as certain in looking at the holding company liquidity over the next year.
Since we have – you can see this little footnote that we have $46 million of dividends and interest that have been applied for, once we receive approval I think that concern will be substantially diminished.
With respect to investments, what we have to do is do some additional stress tests on investments and take a look at how bad could it be? Take the Moody’s numbers for you know their worse case scenario and run it through and do some additional work. And that work had not been completed yet and so we’ll have ongoing discussions.
Jukka Lipponen - Keefe, Bruyette & Woods
And with respect to the whole co-liquidity there was the item, the inter-company loans and other, what exactly are those?
Edward J. Bonach
The inter-company loans is that we do have in both, Jukka, the insurance companies but also in the non-insurance companies we have cash balances and we do put these inter-company loans in place to have the liquidity available as necessary up at the ultimate holding company.
Jukka Lipponen - Keefe, Bruyette & Woods
And with respect to capital, the other reinsurance in capital actions that helped the RBC I guess about 11 points, can you give us a little more color? How much is internal versus external and what kind of reinsurance are we talking about?
Edward J. Bonach
Yes, the primary driver of that was a financial reinsurance transaction to reinsure a significant part of Bankers Medicare supplement business. So for GAAP it is a financing accounting treatment, but for statutory it provides considerable capital relief on RBC and as illustrated by our slide.
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