2015 Fall Q22
Why do we include both investment income and investment expenses when calculating net income? Doesn't income = revenue - expenses, i.e. income already includes expenses?
Also, are realized gains always listed separately from investment income? Is there any situation where you would not group the two in a calculation?
Comments
Operating expenses do not include investment expenses that's why you'd need to include it. Operating expenses are more like ALAE and ULAE.
For your last question, please refer here: https://www.battleactsmain.ca/vanillaforum/discussion/677/2018-fall-q24#latest
So if "investment income" does not include realized gains and "net investment income" does, shouldn't the formula for ROR be:
( U/W.Inc - CapGains + NetInvInc + IncFrmSubs ) / GWP
instead of:
( U/W.Inc - CapGains + InvInc + IncFrmSubs ) / GWP
as shown in the wiki (MSA.Ratios)? Otherwise, wouldn't we be subtracting realized gains from investment income that is already excluding them?
For example, in Fall 2018 Q24 b.i., the formula for ROR is using NetInvInc instead of InvInc.
I didn't realize that there was an earlier thread discussing this inconsistency. I guess the best thing to do is to clearly state your assumptions.
https://www.battleactsmain.ca/vanillaforum/discussion/44/fall-2017-25-ro
Yes - Sometimes (Actually a lot of times) the CAS are really inconsistent. I would just follow the study kit definition to be on the safe side though - But definitely state your assumptions in the exam