Is the UPR in the technical reserves gross or net of DAC? Am I right in thinking, we should include the DAC item in the technical reserves (since It is a reserve for CHE)? If so, if we have UPR and DAC in the reserves separately, then URP will be gross of DAC, and we must have a separate figure for DAC also? If it's net of DAC, we'd only include UPR net of DAC in the technical reserves figure, but it would be a bigger figure (since we add on DAC to UPR to get the net figure) One thing i'm wondering about is this: If DAC is an asset, why would we add it to the reserves, which are liabilities? Because we add the UPR to the OSCR to get the technical reserves, as we set up reserves as soon as we write policies ,but why then is the DAC a reserve when it's an asset - so should reduce liabilities? Sorry , but bit confused about all this and would like clarification thanks again.
DAC is an asset, not a reserve. You can think of it as a negative reserve. For most companies (and therefore for most exam questions), you can calculate UPR net of DAC, so reserves are smaller and profits look bigger. If, in a set of accounts, you're showing EP net of DAC, then you shouldn't have an increase in DAC elsewhere in your revenue account. Alternatively, show EP gross of DAC, then show increase in DAC as an additional item.
