2014 Fall #25 - Contingent Commission

DulcineaDelCADulcineaDelCA
in CIA.PrLiabs

PolLiabs (UPR) = APV + FutRe + Maint. What about the other net premium liabilities like commission adjustment or premium adjustment? Do they need to be included in this formula? The reason I ask is that, in 2014 Fall #25, contingent commission is added as a component of PolLiabs(UPR). Are there any other pieces of liabilities that we need to be aware of?

Comments

  • grahamgraham

    You can ignore the calculation portion of that exam question because it is from an old version of the premium liabilities reading. The new reading is totally different. These old exam problems are highlighted in tan in the BattleTable in the wiki page but I will make it more clear that you should ignore them.

  • grahamgraham
    edited October 2019

    IMPORTANT UPDATE:

    In the syllabus reading:

    • Canadian Institute of Actuaries,” Educational Note: Premium Liabilities,” July 2016. Candidates are responsible for the Excel illustrations attached to the Educational Note.

    there is an inconsistency between page 5 of the source text and a formula in the related Excel exhibits. In particular, page 5 of the source text states that premium liabilities consists of 3 items:

    • future claims & adjustment expenses
    • expected reinsurance costs
    • maintenance expenses

    But in Appendix B, sheet 3, column 28, the calculation for premium liabilities also includes "contingent commissions" (although the contingent commissions in the example are all 0 anyway.)

    It appears that for question 14 in the Spring 2019 exam, the examiners deducted points for not including contingent commissions in the premium liabilities calculation.

    The wiki content is consistent with page 5 of the source text and did not include contingent commissions as part of the premium liabilities. It appears however that the examiners intend that contingent commission should be included as part of premium liabilities.

    In symbols, it appears the text meant to state the formula for premium liabilities (or policy liabilities associated with the UPR) as follows:

    • PolLiabs(UPR) = APV + FutRe + maintenance + contingent commissions
  • oxalisoxalis

    Is question a) still on the syllabus?

  • grahamgraham

    Probably not. The reading on premium liabilities was different in 2014 and while they could try to ask a similar type of question (where you have to back-solve for the unknown loss ratio) I think it's pretty safe to to ignore this question when you're studying this topic. I marked this exam question in tan highlight on the BattleTable to indicate that it's partially or fully outdated. Here's the link:

    It was a strange question and I very much doubt it would be repeated in any form.

Sign In or Register to comment.