2019 S 10
2017 net UEPR = 2016 calendar year net UEPR balance + 2017 calendar year net UEPR balance
I do not understand the formula in the examiner report. why do we need to include 2016 unearned premium?
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2017 net UEPR = 2016 calendar year net UEPR balance + 2017 calendar year net UEPR balance
I do not understand the formula in the examiner report. why do we need to include 2016 unearned premium?
Comments
Link to exam question:
Something is strange in this question. I agree that what the examiner's report did doesn't make sense. Adding the UEPR for both 2016 and 2017 implies that there is still some UEPR leftover from 2016. That could only happen if there were policies written in 2016 that had a term of more than 1 year. Otherwise any UEPR leftover at the end of 2016 would have been earned in 2017, so the UEPR related to 2016 policies would be 0.
In any case, to do the problem correctly, you would need the 2017 year-end value of UEPR for policies written in 2016. But this is not given. You are only given the 2016 year-end value of UPER for policies written in 2016.
If I were doing this question on the exam, I might have assumed that 2016 had no leftover UEPR at year-end 2017 (and would have stated this assumption) so the UEPR used in the calculation of total liabilities for year-end 2017 should use only the 2017 column as follows:
So total liabilities would be:
And the final answer for the surplus would be:
There was no mention of this in the examiner's report so I don't know how they would have handled it if someone had done it this way.
I don't understand how the solution you have presented is accurate. Since some of the premium that is earned in 2017 must be from premiums that were written in 2016, wouldn't you have to consider the CY 2016 written and earned premiums in your calculation of UEP as of year-end 2017? Isn't your solution basically ignoring the UEP that existed as of year-end 2016?
Graham's point is that premium written in 2016 would likely have been earned by yearend 2017, so that it would not contribute to the UEP at yearend 2017.
By this token, the UEP that existed as of year-end 2016 would have gone down to zero at yearend 2017.
Why do we not need deduct CHANGE in provision for reinsurance for calculating surplus in a)?
Surplus is essentially the difference of assets and as-of-date liabilities. It encompasses the full value of liabilities, not just the change in their value in the calendar-year.
I think it's confusing as the header for premium information is Calendar Year. If it said Policy Year Premiums, adding the UEPR for PY2016 would make sense.
This is incorrect.
UEPR is the reserve amount as of end of the calendar year of the statement. Policy Year is not related to this.