Accounts September 2011 Q5

[sma09gc]

Hi,

I am currently calculating the investment income on TPs for the revenue account in part is). I understand all calculations in the solutions except why the large claims earned in the year are multiplied by 25%. Is this an assumption, that we pay 75% of the large claims incurred in the year in that year? I can't see it in the assumptions list in the question so was just wondering where this comes from.

Thanks!

 

[Darren Michaels]

Since the loss ratio is 65% and paid claims are 40% of earned premiums, the OCR will be 65-40=25% of earned premiums.

 

[indexo]

To my understanding, incurred claims = paid claims + increase in OCR. In this case, isn't 25% of earned premiums = increase in OCR?

 

[indexo]

Oh, unless it is OCR c/f in 2009 - OCR b/f 2009 but here OCR b/f 2009 = 0. Can I interpret this way?

 

[Darren Michaels]

Oh, unless it is OCR c/f in 2009 - OCR b/f 2009 but here OCR b/f 2009 = 0. Can I interpret this way?

Yes that's correct. Recall: Claims Incurred = Claims Paid + (OCR c/f - OCR b/f)

But as you state OCR b/f (ie at the start of 2009)=0.