1. Posts in the subject areas are now being moderated. Please do not post any details about your exam for at least 3 working days. You may not see your post appear for a day or two. See the 'Forum help' thread entitled 'Using forums during exam period' for further information. Wishing you the best of luck with your exams.
    Dismiss Notice

2009 April Q3 part (i) - Expense Apportionment

Discussion in 'SP1' started by Jian_901, Sep 21, 2018.

  1. Jian_901

    Jian_901 Member

    Hi Mark

    Thanks for responding to the posts on this forum. It was very helpful and very much appreciated.

    This is a straight-forward book work question. However, is it possible to provide one (perhaps two) brief numerical examples of how this is done in practice?

    Overhead Expense
    How do overhead expenses get allocated to the 'drivers' (for example, premiums, sums insured) in practice?

    Direct Expense
    It is said that Direct Expenses can be split into initial, renewal, claims, termination and investment expenses, and further split into salary-related, property, computer usage and investments. I am confused by this sort of layering, is it simply saying, for example, salaries of underwriters are categorised as initial expenses and can be allocated to the number of new policies written?

    Some (simple) examples could be helpful.

    Thanks Mark.
    Jian
     
    Jian_901, Sep 21, 2018
    #1
  2. Mark Willder

    Mark Willder ActEd Tutor Staff Member

    Hi Jian

    Here's a simple numerical example. The insurer has CI premiums of 100, IP premiums of 100 and LTCI premiums of 200. The overheads are 40. If we use premiums as a driver to split this then we allocate overheads of 10 to CI, 10 to IP and 20 to LTCI.

    Yes, you are right. The salaries of underwriters are allocated to initial expenses and could be allocated in proportion to the number of policies written. The cost of the computers used to calculate reserves is a renewal expense and could be allocated in proportion to the number of policies in force. The salaries of the claims team are claim expenses and can be allocated in proportion to the number of claims (or perhaps the claim amounts).

    Best wishes

    Mark
     
    Mark Willder, Sep 21, 2018
    #2

Share This Page