Fall 2014 Q16

dogechow

In the wiki, it says:

"Note that the solution in the examiner's report for the net commissions problem (2014.Fall #16) is all messed up"

Could you elaborate on this? I didn't notice anything wrong with it; I attempted this question and got the same answer as the one provided (Total Net Commissions = 102,100).

Staff-T1

Not sure - I also got the same answer as you. @graham thoughts?

graham

Hmmm...I did the problem a different way and I thought I got a different answer but that was several years ago. I solved it again using my method and now I get the same answer so maybe the exam question is ok. For the column numbers, please refer to the Exhibit 80.10 in the annual statement.

Here's what I did:

If instead you first calculate the missing value for the Property line for "Commissions in respect of premiums written (Direct), column (07)", you get 31,000. To do that, you use the formula "Net Commissions attributable to the period (02+07+09)-(03+08)" and solve for the missing value in column (07). You can then calculate the total for column (04) as 31,000 also.

Then the "Gross Commission Expense (line 79, column 02+04+05-08)" equals 93,600

Then the "Total Net Commissions" can then be calculated as shown below (should get the same answer as examiner's report) using this formula:

• "+" Gross Commission Expense (line 79, column 02+04+05-08)

• "+" Gross Contingent Commissions

• "+" Gross Other Non-Deferrable Commissions

• "-" Ceded Commission Income (line 79, column 03+06-09)

• "-" Ceded Contingent Commissions

• "-" Ceded Other Non-Deferrable Commissions

and this equals

• (93,600 + 11,000 + 0) - (2,500 + 0 + 0)
• = 102,100

And this agrees with the answer in the examiner's report although they presented the calculations differently. I'm not sure now what I was thinking. If the above looks ok, then I will remove that comment in the wiki about the problem being messed up.