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Chapter 9 - Qn 9.10

vidhya36

vidhya36

Very Active Member
How did they calculate DAC in question 9.10

I tried treating it as unearned commission; also, as 55% of UPR carried forward to the next year.

In both the cases, the answers are not matching to the answer provided in the book. Can someone help me with the missing piece here, please.

Thanks
 
I have a query regarding the same question, so using the same thread.
When calculating the numbers for the 3-year accounting of Company B (the reinsurer) I could match all my answers to the solution except the following.

When 2017 claims reserve was released amounting to 4.05 this was recognised partially in 2018 and remainder in 2019. That is, 50% recognised in 2018 and 50% carried forward to its final year of account that is in 2019. First of all why 50-50? Is it because 2 open years of account are left so the recognition of the release is split equally?

And if so, why was this not replicated for the 2018 release of 12.27? Why was 66% of it amounting to 8.18 recognised in 2019 and only 33% carried forward?

As such, neither of these seemed intuitive to me, as I considered the recognition of surplus to be done equally across 3 Years of Account, so I would split these as 1/3rd. That is 33% in each year. So I think I am missing some crucial understanding here. Please correct me and help me gain better clarity on this aspect. Thanks...
 
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The 2.03 is not half of 4.05, it's the loss recognised at the end of 2017 from the 2017 account. See the fourth line in the solution.
 
Hi, I am looking for some clarification on how the incurred claims get calculated in this question.

In annual accounting, incurred claims are calculated as paid + OCR c/f - OCR b/f. However what we have in this question is a table of ultimates, i.e. paid + OCR c/f.

Since we are missing OCR b/f I don't see how we have enough information to construct the claims lines of the accounts. Am I misinterpreting something here?
 
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With accounts, sometimes you have to change your calculation methods (and often the accompanying assumptions) depending on the data you've been given. You're right that often, incurred claims can be calculated as paid plus the increase in OCR. But another way is to apply the loss ratio to premiums to get claims incurred directly, which is what's happening here. See note 2 on page 48 of chapter 9.
 
But if the LR here is defined as incurred/premium then the calculation of the claim adjustment doesn't make sense. Incurred = Paid + increase in OCR, so if we make a separate (claims) adjustment we are double-counting the increase in OCR
 
Incurred claims can also mean simply paid plus outstanding reported, or even just ultimate claims, which is more likely to be what they're talking about when using a loss ratio.
 
Hi, may I know why the 2.02 carried forward from the 2022 year and the further release of surplus 2.03 from 2022 are recognised for the contribution in 2024's underwriting result, instead of remaining in the fund? While the 2.03 surplus can only be recognised in 2023 due to the loss of 2022, and the 8.18 surplus can only be recognised due to the loss of 2023.
 
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