Account questions

Discussion in 'SP7' started by wwatson, Sep 4, 2021.

  1. wwatson

    wwatson Keen member

    Hi

    Could anyone / Acted tutor please help me get this straight

    How do you treat DAC appropriately...

    When calculating Earned Premium, should you do Written Premium + c/f UPR net of or gross of DAC - b/f UPR net of or gross of DAC

    If you use net of DAC in the Earned Premium line, do you include or exclude the Increase in DAC line?

    In the Paid Expense line, is that right to do DAC * Written Premium for the year? If not what should it be?

    What about UPR in the Balance Sheet, would it be net or gross of DAC?

    Many thanks in advance!
     
  2. Ian Senator

    Ian Senator ActEd Tutor Staff Member

    EP=WP-increase in UPR (increase being c/f-b/f). If the UPR is net of DAC, then you don't have an 'increase in DAC' line.
    Paid expenses is just that: the total expenses paid in that year. Nothing to do with DAC.
    On the balance sheet, DAC can be an asset, OR you can use it to reduce the UPR on the liability side.
     
    Ppan13 likes this.
  3. wwatson

    wwatson Keen member

    Thanks Ian. I think all makes sense to me. Appreciate that.

    For the expense part, I meant to say
    If UPR net of DAC is 90% of the UPR
    then we can say acquisition cost is 10%
    and multiply that 10% to GWP to get Acq Expense Paid for the year

    am I right doing that?
     
  4. Ian Senator

    Ian Senator ActEd Tutor Staff Member

    Yes, that would be a reasonable and consistent assumption. Don't forget that 'expenses paid' includes non-acquisition costs too though.
     
  5. wwatson

    wwatson Keen member

    Thanks so much for your response. One more follow up question if I may..
    When given only Target Loss Ratio and UPR (or GWP) of current and next year, but not paid amount, how do we work out Claims Incurred...?
     
  6. Ian Senator

    Ian Senator ActEd Tutor Staff Member

    Depends on how you define things. But normally, loss ratio is claims incurred over earned premiums. You have the loss ratio, and if you know the unearned premiums across years, then you should also know earned premiums across the years. So you're there.
     
    wwatson likes this.
  7. wwatson

    wwatson Keen member

    Thanks a lot Ian ;)
     

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