Hi, I am aware that when calculating reserves using the prospective method, we use the formula: EPV Premiums=EPV benefits+EPV expenses However, in some exam questions I see commission. What exactly is 'commission' in this context, and would it be categorised under benefits, expenses, or something else? Thanks
Hi, please correct me if I am wrong. Commission is usually paid out to agents, intermediaries, own sales force etc for helping the insurance companies selling their policies. For that, Insurance companies pays out an amount to those agents as a form of reward for gaining them new business. So, commissions comes under expenses. There are cases where insurance companies pays renewal commission to those agents after receiving the premium income from policy holders. Renewal commission is usually low in comparison to initial commission. I hope this answers. Cheers
