Fall 2013 - Q20
Hi Graham,
When I was doing this question, I actually add the contingent commission and treated as UEComm. However, the exam report shows that contingent commission should be DEDUCTED. Could you please help me to understand why it should be deducted?
max allowable DPAE = max(0, net UPR - Pol Liab(UPR) ****+**** UEComm)
thanks a lot!
Comments
Q20A is outdated includes references to FA.
Question would likely be defective in current exam as "contingent commission" isn't clear whether they are referring to ceded contingent commission or gross contingent commission. In the context it makes sense as there is no reference to seeding except the FA - which doesn't provide contingent commissions.
See P&C Statement 80.10 (Line 33, Line 43).
In this question they are "Gross" contingent commissions and are a Commission Expense or Unpaid [deferred] Commission (rather than Unearned Commission).
chrisboersma is correct that this question is outdated. I have it marked outdated in the BattleCards but I have now added orange highlighting so people can see better that it is actually outdated. You can ignore this question completely. Focus on the more recent exams for DPAE.
@graham the part B ) of this question does not appear to be oudated in the battlecards. Would you be able to confirm if when we calculate PremLiabs if we should calculate the DPAE as a total of future losses and LAE, or do it on a LOB by LOB level DPAE calculation?
Yes, part (b) isn't outdated but I thought it would be confusing in the BattleTable to list parts of those older questions as outdated and other parts as valid so I marked every question from the old reading as outdated. I left part (b) in the BattleCards however.
To answer your question, the premium liabilities would be calculated separately by line (because different lines would have different payment patterns and expected loss ratios) but in the financial statements and expression of opinion, there is no provision for separate DPAE estimates by line. You would aggregate the premium liabilities and the unearned premium, then calculate the DPAE on an aggregate basis. This is how it is done in the appendices to the premium liabilities source text.