How underwriting surpluses are calculated

tDAO members own the tDAO fund are entitled to the fund’s surplus through their Membership Credits. In layman terms, the Surplus are excess funds that are “leftover” after reserves and expenses.

Whenever a participant pays a contribution, they receive 1 Credit per 1 USDC equivalent paid. The fund continuously calculates its surplus. The surplus is defined as:

Surplus	=	Earned Benefits Reserves (EBR)	-	Contribution Deficiency Risk (CDR) Amount

For each participant, the share of their contribution that is added to the Benefits Reserve, is defined as being “unearned”. It is then “earned” by the fund pro rata during each membership year. This earning happens because with every day passed, the risk of the participant making a claim for that year has decreased a little. In addition, the Fund Reserve is ‘earned’ over time as well. For this, each day 1/365th of the lower of today’s Fund Reserve and the Fund Reserve of 365 days ago is earned. This amount is added to the Benefits reserve and ‘earned’. The total earned Benefits Reserves of all participants, which decreases when Benefits and surplus payments are paid out, forms the fund’s “Earned Benefit Reserves” (EBR). Note that this is an accounting reserve.

Earned Benefit Reserves (EBR)	=	Total EARNED Benefit Reserve	-	Benefits and Surplus paid out

The Contribution Deficiency Risk (CDR) amount is calculated as the total amount the fund would pay out if the pay-out frequency grows (more benefits are successfully claimed) by 3 standard deviations, meaning there is a 99.5% confidence interval total pay-outs will not exceed this number in the next 12 months, minus the sum of the unearned Benefit Reserve contributions of each participant combined and minus the applicable share of the rePool

Contribution Deficiency Risk Amount (CDR)	=	Expected total (max) benefits payout with a 99.5% confidence interval over the coming 12 month period	-	Sum of unearned Benefit contributions and applicable share of the rePool (see below in Section 10).

So, if the fund’s EBR exceeds the CDR, the difference is the fund’s surplus. When participants leave the fund, at the end of their 5-year membership, they are entitled to receive their share of the surplus. This share is calculated through dividing the participants’ Credits by the total number of Credits outstanding.

For example, if the fund’s surplus is $5,000,000 equivalent, a participant holds 1,000 Credits and there are 20,000,000 Credits in total, the participant can receive (1,000 / 20,000,000 ) x 5,000,000 = $250 equivalent.