Hi Couple of things: i) In the example question, should we strike off the 'commission' before 25% in (a) and the 'commission' before the 30% in (b)? It was rather confusing at first. ii) On page 29 in the constructed profit and loss account, how do we split the investment income into 51.98 and 13.54? I guess I don't how to work out the ratio for insurance fund. Many thanks.
Hi Jensen, We use the 30% to calculate the total expenses paid (in the revenue account on page 29 we have 0.3 x 330 = 99). We use the 25% to calculate the DAC (eg in the 1 Jan 2010 balance sheet on page 28, we have 0.25 x UPR = 0.25 x 165 = 41.25). You had the right idea for calculating the investment income; we take the total assets in the balance sheet and split this between the technical reserves and the shareholders' funds: Remember that shareholders' funds = total assets - liabilities (or equivalently, technical reserves = total assets - shareholders' funds). So as at 1 Jan 2009, the technical reserves are 520 - 107.5 = 412.5, and as at 1 Jan 2010 they are 572 - 118.2 = 453.8. This gives an average technical reserve for the year of 433.15. Investment income on technical reserves is 12% of this, which is 51.98. Investment income on shareholders' funds is less problematic: 12% x (107.5+118.2)/2 = 13.54. Kind regards, Katherine.
