Hi. I am not entirely sure how to work out the DAC figures in the Balance sheet. The question states that the DAC is a % of the Gross Written Premium. But the solution seems to calculate this as a % of earned premium. For example for company X, the GWP is 50. If assuming the risks are written uniformly over the year, then the earned premium should be 25. Then 30% of this gives 7.5, which can be rounded to 8, as per the answer. But does this mean the question is wrong then?
I think the point here is that the question refers to 'Acquisition Costs' as a percentage of premium written being 30% - i.e. the cost of aquiring business is 30% of the premium written. However for the balance sheet calculation we want the 'DEFERRED acquisition cost' which corresponds to the acquisition cost that corresponds to the unearned premium at the end of the year.
