When determining whether the UPR exceeds the URR (for the AURR calculation), should claims handling expenses, DAC and investment income on reserves always be netted off from the UPR (gross of DAC) if we are given the necessary information? Thanks
To determine whether or not you need to hold an AURR, you need to compare the UPR net of DAC with the URR. You compare with the UPR net of DAC (as opposed to the UPR gross of DAC) because this is the reserve that you actually hold at the end of the day. The URR, is the expected future cost of claims and associated expenses from the portion of the premium not yet earned, so you should allow for claims handling expenses and investment income (as well as claims inflation and premium rate changes).
