Does AURR ever appear in the P&L If so, where does it appear and how do i show it in the account? Does it matter if it is appearing in the account for the first time or if it is a change in AURR (similar to UPR) The notes seem to explicitly state where AURR should appear in the balance sheet but not for the P&L Thanks!
I might be reading this wrong, but the AURR will impact the underwriting result and therefore insurance profit and hence impact the P&L?
Yes i was thinking the same, but then also thought that P&L is only concerned with premium earned and claims incurred. But since AURR is only needed if premium (net of acquistion costs?) is insufficient to cover claims and expenses for unexpired risks, we would only need to account for the change in the AURR similar to UPR. So instead of calculating the UPR carried forward less the UPR brought forward, we should actually calculate URR carried forward less URR brought forward which should should cover both UPR and AURR at the same time? But using this method would cause problems calcualting the DAC as this is only a percentage of the UPR....! All very confusing!
Hi LastHurdles If an AURR is required then you need to include it in both the balance sheet and the P&L account (or strictly speaking the technical account). The amount required in the technical account will be the increase in any AURR required over the year (ie AURR carried forward minus AURR brought forward). This will reduce the underwriting profit for that year. If there was no AURR required at the end of the previous year then the full amount of the new AURR will be included in the technical account (as the brought forward amount will be zero). You could try using the URR instead of the UPR, but then as you say you need to be careful about DAC as it is based on the UPR. I would recommend sticking with Earned Premiums = Written Premiums - Increase in UPR (Gross of DAC) and separately subtracting the increase in the AURR and then adding on the increase in DAC. This is covered at the bottom of page 10 of the Course Notes.
