RA for LIC
Could you explain why the RA for LIC increases as the coverage period progresses? Does the RA for LRC gets released into the LIC completely? If thats the case then shouldnt the total RA remain unchaned throughout the coverage period? In the diagram it doesnt seem like this is the case..
Comments
It's possible when expected claims is not the same as actual claims. LRC is based on expected claims, where as LIC is actual incurred. As policies are earned, LRC becomes LIC, but at the same time you need to adjustment the LIC to reflect actual experience. If the experience is worse than expected, you increase the LIC which increases the RA. The result is a negative impact on the P&L.