Hi, In assignment x2.1 it says that in the calculation of AURR the denominator of the Losses incurred and expenses incurred should not be net of commission. a) I think it should be net of commission since the UPR is also net. b) Also losses incurred should not include PY reserve releases What do you think?
I think the solution is correct as it stands. For your first point: When calculating an AURR, you are estimating future losses and expenses in the unexpired period of cover, by multiplying the unearned premium by a suitable loss ratio. An appopriate loss ratio would be claims incurred over earned premium. The earned premium would be gross of acquisition costs, as DAC should only be allowed for as part of the UPR calculation. Your second point: We want to include changes in prior years' reserves somewhere, don't we? As the rest of the question stands, it seems as if these are not included in the calculation of the OSCR, so it seems reasonable to put it into the AURR (even though, strictly speaking, this is normally to provide for unexpired risks).
