sample 29

david

In calculating ISE, why does the earning pattern applies to insurance acquistion expense as well here?

For example, group B2022 has 50% earned in 2022 and 50% earned in 2023. I think the solution is calculating the 2022 ISE for this group as 50% of (Incurred claims + acquisition expense).

I thought that we usually assume acquisition expense is incurred at/near inception. Am I missing something here? or is it also okay to calculate the 2022 ISE as 50% of claims + all acquisition expense

Staff-T1

Acquisition expenses are usually amortized throughout the term of the policy, that means they are incurred as the premium is earned. This is common accounting practice to prevent there being an upfront hit to your financials because of acquisition costs which are usually very high