R
RedCoat
Member
Hello,
The specific part of the question I am referring to is:
"An insurance company has made the following purchases during the year:...
(b) a new computer system for the payment of annuities...
Describe how each of these items might be dealt with in the annual analysis and allocation of expenses."
And the answer given is
"The capital cost would be amortised over the expected useful lifetime of the system purchased. The amortised cost would be allocated to renewal expenses, and it would be specifically allocated to annuity business."
I understand the amortisation point and the allocation to annuity business, however I am struggling to understand why it would be allocated to renewal expenses, please could anybody explain? Obviously it can't be allocated to policies already in force, but I'd have assumed it would be added as an initial expense to new business. In any case, I wasn't aware that annuity business often was renewed?
Any help much appreciated!
The specific part of the question I am referring to is:
"An insurance company has made the following purchases during the year:...
(b) a new computer system for the payment of annuities...
Describe how each of these items might be dealt with in the annual analysis and allocation of expenses."
And the answer given is
"The capital cost would be amortised over the expected useful lifetime of the system purchased. The amortised cost would be allocated to renewal expenses, and it would be specifically allocated to annuity business."
I understand the amortisation point and the allocation to annuity business, however I am struggling to understand why it would be allocated to renewal expenses, please could anybody explain? Obviously it can't be allocated to policies already in force, but I'd have assumed it would be added as an initial expense to new business. In any case, I wasn't aware that annuity business often was renewed?
Any help much appreciated!