BattleQuiz Question 30

If all the info for AY & AY-1 is as of the latest CY and reflects the years in which premiums were earned & losses were incurred, then how come we don't add the AY-1 Unearned Premium as part of the liability?


  • The short answer is UEP is a "rolling" value, unlike unpaid losses which stay on the books until payments are explicitly made. We don't care what the UEP was a year ago. We only care about the current value. This is explained further below.

    In calculating liabilities we have to consider unpaid losses from all AYs. It's only when when a claim is paid, and those unpaid losses are converted to paid losses, that they are no longer part of the liabilities.

    But with UEP, premiums are constantly being earned and thus removed from the liabilities. (At the same time, new policies are being written and are generating new UEP.) We don't care about the UEP value from a year ago because it will all have been earned and moved from liabilities to U/W income. We only care about the current value of UEP for calculating current liabilities.

    I think the way I laid out the given information may have been confusing. The UEP is really just a CY value. I put it in the table with AY/CY information just so I didn't have to make a separate table for that one piece of CY information. The exam problem this was based on, 2016.Spring # 15b, put the losses and UEP in different tables and labeled them differently. So sorry for not being completely clear in how I laid out the problem.

  • If you'll take a look at Q10 Spring 19 I think that UEPR is laid out in a similar way which is why I was a bit confused.

  • Oh yes, it looks quite similar. One really has to pay attention to whether the column headings refer to AYs or CYs. In 2019.Spring Q10 the 1st and 3rd tables have CY headings whereas in the middle table, the headings refer to AYs.

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