Hi - as SA 2 exam is getting close, new doubts are coming up. I would appreciate if people could spare a few minutes to answer my question. Thanks a lot in advance The profit reporting chapter in talking about DAC says - if a suitable valuation basis, for eg use of gross premium valuation for With profits business is used then Acquisition costs may already have been naturally deferred. I dont understand how so. Is it becuase gross prem val places lower value on liabilities than net premium, in effect reducing NBS effects? I am not sure. Also with regard to net prem and gross prem valuation - why does regulation recommend using net premium method for non linked ( regulatory basis life firms), allowing use of gross prem only if reserves are atleast equal.?? Thanks
re 1st point: yes because GPV takes off PV of office premiums and office premiums include a loading for initial expenses. So you are reducing the value of liabilities to allow for the initial expenses that you have already paid. re 2nd point: ??????? perhaps just because they think that the NPV is suitably prudent.
