One past exam question
For the sake of completion putting an exam question, which has been asked by SoA:
Describe the circumstances under which an insurer should establish a premium deficiency reserve under SSAP 53?
Answer: when future outgoings for an existing policy > future incomings (i.e. UPR of the policy)... or the policy would be a loss making one in future.
In official language:
When the anticipated losses, loss adjustment expenses, acquisition costs, and maintenance costs exceed the recorded unearned premium reserve, and any future installment premiums on existing policies. Acquisition costs need not be
considered in the premium deficiency analysis to the extent they have previously been expensed.
Thanks
Comments
Sounds good to me. I like your use of "outgoings" and "incomings". The outgoings include several items, as do you the incomings, as described in your post.
In what situation would the actuary expect to have a premium reserve deficiency? Why would an actuary not trust the UEP to be sufficient for losses that have not yet occurred? Doesn't the UEP already takes into account the expected future value of losses (as well as expenses, profit, etc)? Thanks.
Not necessarily. UEP is determined by applying an earning algorithm to premium. This may fall short of estimated future losses.