It's a little confusing because the given information is a mixture of CYs (Calendar Years) and AYs (Accident Years).
To calculate 2014 year-end liabilities, you need only the table with the Schedule P information. That table shows liability balances as of year-end 2014 but it is broken out by AY. The total 2014 CY year-end liabilities include unpaid losses from all prior AYs. In this case there are only 2 prior AYs, 2013 and 2014, because the company started operations in 2013.
If they company had been in operation for longer than 2 years, you would have to include all prior AYs back to the company's inception. (Very old years would likely have unpaid losses of 0 however.)
For this same problem, are we just assuming the provision for reinsurance is 0 since we weren't given it or the information necessary to calculate it? The provision for reinsurance would typically be included in the 2014 year-end statutory liabilities, correct?
A separate question, 2014's Schedule P would never show losses that were incurred in 2013 would it? So it is safe to assume whenever we are given year X's Schedule P that all losses listed as incurred were incurred in year X, and if its broken out by AYs then those are just losses that occurred in that AY but were incurred in year X.
I think there may be an error in the practice problem for this section that asks you to calculate SAP liabilities. The answer only includes the UEP for the most recent AY, and not AY-1. I believe it should include both, but correct me if I'm wrong.
In 2016.S.15, there is only one UEPR figure given, 575000. It is the balance as of yearend 2014, and it is what should be included in the total SAP liability.
UEPR is not attributed to AYs; it is the liability of the whole portfolio as of a point in time.
Earned premium is attributed to calendar years, which are matched with AY losses for commensurate comparison.
Sorry, I was referencing the practice problem that is based on this problem. It shows a net UEP for both CY/AY and CY/AY-1 so I would think those should both be included in the calculation of liabilities for the current year, but it only includes the net UEP for CY/AY.
Ok, so, UEP is a Balance Sheet liability item that is provided as of end of the filing year in question. My previous explanation applies. Here, it was provided for both CY an CY-1 (a trick). But since we are asked for the liability as of end of CY, it is only the CY's UEP amount that is included.
I'm sorry I'm still a bit confused here, the columns in the BattleCard are CY/AY-1 & CY/AY. If the CY/AY column is providing all the UnEP for the CY. Than what is CY/AY-1's UnEP for?
Above it looks like you are saying it's CY-1's Un-EP but that doesn't make sense with the labeling in the table.
mec06e, In the actual problem of Spring 2016 #15, they only give you one value of Unearned Premium and they put it in the "Balance Sheet" portion of the information given. Because it is a balance sheet item you know its CY & not AY so you don't sum it across 2 (again, we are only given 1 in the actual exam problem anyways)
I believe this problem is just modeled around the math of the exam problem, but the information is clearly presented in a different way here since there aren't 2 distinct tables for BS vs Schedule P. Strictly giving us information in this way, I don't see any reason why we'd be summing SOME reserves across years but not all. I haven't seen any prior exam give multiple types of information in this way without differentiating tables.
Spring 2019 #10 is a problem where the solutio has you sum net UEP reserves over 2 years and they are actually even given as "Calendar Year Premiums" so now I am back to not fully understanding this.
Hi zachboaz, yes I agree the Spring 2019 # 10 is a perfect example showing we sum all the AY for the liabilities.
somebody even asked about this question in the forum for Spring 2019#10 and the response from Staff - AC was:
"The two years used for liability are accident years. You need to use the liability on all accident years in determining surplus, because they all make up the portfolio. For assets, you want the latest picture, which is the amount as of a given yearend."
If the column labeled CY/AY-1 is intended to be the UEP as of CY-1 year-end (and not the UEP for AY-1 as of CY year-end), then I think the labeling needs to be corrected because it is misleading in its current form.
katieoc27, it was an oversight that a CY/AY-1 UEP was given at all. It was not there to confuse the student. The intention was to give one UEP figure, under CY/AY.
Hello, I thought Loss payments ceded, Defense and Cost Containment Payments ceded, A&O payments ceded - these are all paid reinsurance recoverable, or they are not consider as paid reinsurance recoverable?
Comments
It's a little confusing because the given information is a mixture of CYs (Calendar Years) and AYs (Accident Years).
To calculate 2014 year-end liabilities, you need only the table with the Schedule P information. That table shows liability balances as of year-end 2014 but it is broken out by AY. The total 2014 CY year-end liabilities include unpaid losses from all prior AYs. In this case there are only 2 prior AYs, 2013 and 2014, because the company started operations in 2013.
If they company had been in operation for longer than 2 years, you would have to include all prior AYs back to the company's inception. (Very old years would likely have unpaid losses of 0 however.)
In the Spring 2016 Excel practice exam, question #15 there is an error in cell G37. The value on the spreadsheet is '50Q' when it should be 500.
Corrected, thx! Alice gave you a shout-out here:
For the BattleActs practice quiz based on this question, in step 5, why do we only add the UEP from CY/AY and not both like we do for the losses?
Where exactly do you find the question you refer to please?
For this same problem, are we just assuming the provision for reinsurance is 0 since we weren't given it or the information necessary to calculate it? The provision for reinsurance would typically be included in the 2014 year-end statutory liabilities, correct?
A separate question, 2014's Schedule P would never show losses that were incurred in 2013 would it? So it is safe to assume whenever we are given year X's Schedule P that all losses listed as incurred were incurred in year X, and if its broken out by AYs then those are just losses that occurred in that AY but were incurred in year X.
lought10:
The net UEP is the balance for all AYs, as of end of 2014.
zachboaz:
1) Yes, since you weren't given it.
2) No. Loss incurred in 2013 would be given in the 2013-year row of the 2014 Schedule P.
I think there may be an error in the practice problem for this section that asks you to calculate SAP liabilities. The answer only includes the UEP for the most recent AY, and not AY-1. I believe it should include both, but correct me if I'm wrong.
In 2016.S.15, there is only one UEPR figure given, 575000. It is the balance as of yearend 2014, and it is what should be included in the total SAP liability.
UEPR is not attributed to AYs; it is the liability of the whole portfolio as of a point in time.
Earned premium is attributed to calendar years, which are matched with AY losses for commensurate comparison.
Sorry, I was referencing the practice problem that is based on this problem. It shows a net UEP for both CY/AY and CY/AY-1 so I would think those should both be included in the calculation of liabilities for the current year, but it only includes the net UEP for CY/AY.
Ok, so, UEP is a Balance Sheet liability item that is provided as of end of the filing year in question. My previous explanation applies. Here, it was provided for both CY an CY-1 (a trick). But since we are asked for the liability as of end of CY, it is only the CY's UEP amount that is included.
I'm sorry I'm still a bit confused here, the columns in the BattleCard are CY/AY-1 & CY/AY. If the CY/AY column is providing all the UnEP for the CY. Than what is CY/AY-1's UnEP for?
Above it looks like you are saying it's CY-1's Un-EP but that doesn't make sense with the labeling in the table.
mec06e, In the actual problem of Spring 2016 #15, they only give you one value of Unearned Premium and they put it in the "Balance Sheet" portion of the information given. Because it is a balance sheet item you know its CY & not AY so you don't sum it across 2 (again, we are only given 1 in the actual exam problem anyways)
I believe this problem is just modeled around the math of the exam problem, but the information is clearly presented in a different way here since there aren't 2 distinct tables for BS vs Schedule P. Strictly giving us information in this way, I don't see any reason why we'd be summing SOME reserves across years but not all. I haven't seen any prior exam give multiple types of information in this way without differentiating tables.
Spring 2019 #10 is a problem where the solutio has you sum net UEP reserves over 2 years and they are actually even given as "Calendar Year Premiums" so now I am back to not fully understanding this.
Hi zachboaz, yes I agree the Spring 2019 # 10 is a perfect example showing we sum all the AY for the liabilities.
somebody even asked about this question in the forum for Spring 2019#10 and the response from Staff - AC was:
"The two years used for liability are accident years. You need to use the liability on all accident years in determining surplus, because they all make up the portfolio. For assets, you want the latest picture, which is the amount as of a given yearend."
Is there perhaps a mistake in the BattleCard?
If the column labeled CY/AY-1 is intended to be the UEP as of CY-1 year-end (and not the UEP for AY-1 as of CY year-end), then I think the labeling needs to be corrected because it is misleading in its current form.
Hello, one quick question. Can I just clarify why we don't include reinsurance recoverable on paid losses in net admitted asset?
Hi_Hi, because it is not given in the problem.
katieoc27, it was an oversight that a CY/AY-1 UEP was given at all. It was not there to confuse the student. The intention was to give one UEP figure, under CY/AY.
Hello, I thought Loss payments ceded, Defense and Cost Containment Payments ceded, A&O payments ceded - these are all paid reinsurance recoverable, or they are not consider as paid reinsurance recoverable?
The given cededs are all on unpaid amounts, not paid.
Thanks for the clarifications, Staff - AC!
Sure, good luck.