Yes/No/Maybe.
I think you can do what you like as long as you make it clear. I think they even say in the notes, or core reading, somewhere the ratio isn't perfect because sometimes they have different denominators.
But accounts aren't my strongest area so maybe someone else can confirm.
Although, I think they take a simplified view in the notes/exam.
I just looked at some accounts (very sad but I hate when something doesn't sit right) and they always have the same denominator.
It works like this for accident year account:
The loss ratio is of course incurred claims divided by earned premium
then for the expenses it is
net operating expenses divided by earned premium
where net operatng expenses is defined as:
Acquisition costs
+Change in deferred acquisition costs
+Administrative expenses
+Reinsurers’ commissions and profit participations
+Loss on exchange
So I guess this is the incurred expenses bit.
For underwriting year accounts we would just not need the change in dac bit and also I guess no administrative expenses other than those incurred for that underwriting year.
Of course part of this is also the unallocated loss adjustment expenses on the claims too, but this is needed for accident years also.
Last edited by a moderator: Sep 20, 2008