Incurred expenses (ultimate or actually incurred)
Hello, I have a question on what expenses we are actually using when calculating UW Income. I see under the table in this section it says that we use incurred expenses rather than paid. I know there is confusion in schedule P in that table 2 is called incurred but it is really ultimate loss and LAE. In the pencil question of quiz 3, it gives the ultimate loss for the AY and change in ultimate loss for the AY. It then gives the LAE and other expenses separately and labels them as incurred (Seems like we are using incurred LAE for the CY). Then in an exam question like Spring 2016 Q 18 part b, the Loss and LAE are provided together and it gives paid and unpaid amounts and then sums the paid and the change in unpaid amount at year end to get the loss and LAE for the UW income. This seems like this is now calculating ultimate LAE as opposed to LAE incurred during the CY. Can you please clarify which way is correct as these two methods seem to be different.
My thought is that we really should be doing what is done in Spring 2016 Q18 but then if that is true I think the U/W income formula in this section needs to be changed so that the LAE is treated like the losses (i.e. the LAE should be broken up in to (current AY LAE) - (change in prior years' AY LAE)).
Comments
We're checking into this. Sorry for the delay.
Ok, we've looked into this and edited the U/W formula at the link below to capture the different ways the information was provided in the 2018 problem versus the 2016 problem.
Thx!