CAS Exam 6C Fall 2014, Question 25
Study guide: Exam 6C
The following information is available for a property and casualty insurance company that writes only auto insurance. All amounts are in thousands of dollars ($000).
| Line of Business | Gross Earned Premium | Ceded Earned Premium | Gross Unearned Premium | Ceded Unearned Premium | Selected Undiscounted Loss Ratio | Discount Factor to Evaluation Date |
|---|---|---|---|---|---|---|
| Auto | 846,200 | 340,480 | 422,500 | 169,000 | ? | 0.91 |
| Facility Association | 72,200 | 0 | 35,400 | 0 | 105% | 0.88 |
| Item | Value |
|---|---|
| Maintenance Expense Ratio | 4% of net premium |
| Internal Adjustment Expense Ratio | 12% of net losses |
| Unearned Commissions | $2,000 |
| Contingent Commissions | $3,500 |
| Deferred Policy Acquisition Expenses (DPAE) | $25,556 |
The selected undiscounted loss ratios are the same on both a gross and net basis.
Part a (2.5 points)
Determine the highest undiscounted loss ratio for Auto that would not require a write-down of the DPAE.
Part b (0.5 points)
Briefly describe the DPAE asset and its purpose.
No current syllabus covers this question; it is kept for the record.
Answer this question and see the worked solution
Concepts tested
- Deferred Policy Acquisition Expenses
- Premium Deficiency
- Unearned Premium
- Insurance Acquisition Cash Flows
- Onerous Contract
- Facility Association