Spring 2019 #10
Can you explain why net UEP is not considered an asset when calculating surplus? Also is there a formula to reference to know what to include when asked to calculate surplus in this way?
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Can you explain why net UEP is not considered an asset when calculating surplus? Also is there a formula to reference to know what to include when asked to calculate surplus in this way?
Comments
Whoops, I meant to say why don’t we consider net EP as an asset? And why do we include 2016 CY UEP as a liability in 2017? Thinking the remainder of the UEP would be fully earned in 2017 - am I thinking about this wrong?
Exam problems generally ask for the surplus balance to be calculated, giving the prior surplus balance. Then, it's a matter of adding net income to the prior surplus balance.
This problem is unusual in the sense that it asks you to calc surplus balance without giving the prior surplus balance. So, you need to use assets - liabilities.
Net EP finds its way to cash, or one of the other asset items.
You need the UEP liability as of 12/31/2017. Difference of written and earned gives you the change in UEP balance, from prior to current. They started business in 2016, so the prior UEP of 2016 is zero. When you add the UEP changes of 2016 and 2017, you arrive at the UEP balance at 2017 yearend.
Hi, can you help me understand why in this problem we use two years of data for the liabilities calculation but only one year of data for the assets calculation? This seems like it is common place looking at some battle cards and other similar problems but I can't wrap my head around why that is.
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.
Hi for a) net income method cannot be used, is it b/c calendar year incurred L+LAE are not given? thank you.
Yes, and because starting surplus is not given either.
Maybe this is a silly question - why we add 2017 provision for reinsurance into liabilities? I think we need to exclude that for SAP surplus, only add in for GAAP surplus.
Provision for reinsurance is like a reserve for reinsurance that may be uncollectible. It's a liability in that sense.