CAS Exam 6C Spring 2017, Question 15
Study guide: Exam 6C
The following information is available for a property and casualty insurance company as at December 31, 2016. The company writes only one line of business. All amounts in the tables below are in thousands of dollars ($000s).
| Gross | Net | |
|---|---|---|
| Unearned Premium Booked | 3,000 | 2,700 |
| Expected Reinsurance Costs | 500 | |
| Undiscounted Loss, ALAE and ULAE Ratio | 60% | 70% |
| Discount Factor | 0.98 | 0.96 |
| PfAD for Investment Return Rates | 30 | |
| MfAD for Claims Development | 6% | |
| MfAD for Reinsurance | 3% |
| Item | Value |
|---|---|
| Maintenance Expenses (% of gross premium) | 2.5% |
| DPAE from Accounting Department | 700 |
| Unearned (Reinsurance) Commissions | 250 |
Part a (2 points)
Calculate the maximum deferred policy acquisition expenses that the company can record on its financial statements.
Part b (0.5 points)
Explain whether or not a premium deficiency exists.
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
- Margin for Adverse Deviations
- Insurance Acquisition Cash Flows
- Loss Reserve Discounting