T
tommo
Member
Question:
general insurance company has been using undiscounted technical reserves for many
years. On this basis, the key accounting data for one particular year is as follows:
written premium was £1,800 million
loss ratio has been stable at 70% for several years
the underwriting result for the year was a loss of £2 million
acquisition costs (ie commission) were 25%
investment return was 8% on funds invested
brokers hold premiums for 3 months before passing them to the insurer
solvency ratio at the end of the year was 40%
tax at 30% of gross profit is paid on the last day of the year
etc etc...
Question is:
The Tax Paid on pre tax profit is 3/7 * (Change in free Reserves). Why is the pre tax profit calculated as (change in free reserves)/7 ?
Thanks,
general insurance company has been using undiscounted technical reserves for many
years. On this basis, the key accounting data for one particular year is as follows:
written premium was £1,800 million
loss ratio has been stable at 70% for several years
the underwriting result for the year was a loss of £2 million
acquisition costs (ie commission) were 25%
investment return was 8% on funds invested
brokers hold premiums for 3 months before passing them to the insurer
solvency ratio at the end of the year was 40%
tax at 30% of gross profit is paid on the last day of the year
etc etc...
Question is:
The Tax Paid on pre tax profit is 3/7 * (Change in free Reserves). Why is the pre tax profit calculated as (change in free reserves)/7 ?
Thanks,