I'm looking at question 4 on assignment 1, and the amount booked for expenses in a year is the expenses paid figure as opposed to expenses incurred figure. Why would you book earned premium and incurred claims but not incurred expenses? It's supposed to be on a GAAP basis so I would have thought the accruals principle would mean that incurred expenses are booked The notes don't really say anything about expenses, except CHE but these are just normal expenses. Also doesn't say that they are acquisition expenses so don't think we need to consider DAC. Thanks
This is the standard approach to calculating underwriting profit. The allowance for increase in DAC in the next line makes the expenses paid closer to an expenses incurred figure. If you cant recall this, I suggest you revisit Chapter 26 of SP7 where it was covered.
