Hi, I'm looking at ST3 April 2006 Question 5 (Exam Question 1 on Book 6 of the Revision Notes for 2016). We are asked to construct a P&L account in part (ii). Looking at the solution most of the numbers are fine. I am just confused as to where the DAC b/f and DAC c/f numbers come from? For the 2002 year say, I was thinking commission would be 8% of 2500 = 200. Then DAC c/f would be half of this (policies 12 months, written and earned evenly) so 100. I can't understand the actual DAC c/f of 20. Am I missing something simple here? Thanks!
DAC b/f = 8% x UPR b/f = 8% x 10% GWP in previous year So for 2002, DAC b/f = 8% x 10% x 2000 = 16 and DAC c/f = 8% x 10% x 2500 = 20 Your methodology would be correct if the three assumptions in your bracket held, but clearly they cannot all hold here as UPR is only 10% of GWP and not 50% GWP (which your assumptions would imply).
