Battle Card #51
The answer shows:
LC is released FROM insurance service expense and amortized from LRC over the duration of the contracts
(so LC = 0 by the end of the coverage period.)
should the first "FROM" be "into"?
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The answer shows:
LC is released FROM insurance service expense and amortized from LRC over the duration of the contracts
(so LC = 0 by the end of the coverage period.)
should the first "FROM" be "into"?
Comments
yes that is right
Fixed, thx!
If the loss from onerous group is recognized immediately in the insurance services expenses, then at subsequent measurement, does the insurance service expense decrease? The release from, and into are confusing me.
Let's say you have a loss component of $100 where that loss is recognized immediately and flows into the ISE at time 0.
Now say you have 4 quarters in a year and in each quarter you now make $25.
Rather than recognizing a profit, the LC is unwound in each quarter, wiping out the profit. The release of the LC is not an ISE, but rather an offset to profit. There would be no additional ISE after time 0
I have attached a sample of what it would look like.
Hi, I am still confused about this card. In the source text, it did use FROM instead of INTO. If LC is released FROM ISE, where is it released into - does it mean that LC will just reduce since LRC will reduce and LIC will be established and ACTUAL claim (loss) will increase as time passes?
So LRC is immediately booked as a loss. That means as the policy is earned, we need to eventually unwind the LC that was booked and this is done through an offset to the ISE (It reduces ISE for the period it is being released in). The LIC itself has nothing to do with the LC, you will have a LIC regardless of whether there is a LC on your LRC or not. We do not care about any actual claim losses for this exercise