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Account questions

W

wwatson

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