C - CIA Premium Liabilities

Question 1

PREMIUM LIABILITIES

Define Deferred Policy Acquisition Expense (DPAE)

Answer 1

• Asset recognizing prepaid acquisition expense for unexpired portion of policy
• Paid upfront when policy is issued but not expensed until premium is earned in the income statement
• Asset on balance sheet includes:
  
  • Broker commissions
  • Premium taxes
  • Renewal costs
  • Advertising

Question 2

PREMIUM LIABILITIES

1. What are Maintenance Expenses?
2. Discuss the inclusion of Maintenance Expenses to reflect the future cost of servicing the policies in-force.

Answer 2

1. Expenses associated with :

• Endorsements
• Mid-term cancellations
• Change in reinsurance contracts

Generally expressed as a ratio of Gross UPR. Evaluated as a ratio of general expenses.

2. They vary by LoB. To determine at what extent, consider:

• Availability of expense info by LoB
• Distribution model of insurer
• Characteristics of portfolio (2yr contracts)

Question 3

PREMIUM LIABILITIES

2 examples of premium development to be evaluated as part of the premium liabilities.

Answer 3

1. Premium development on retro-rated reinsurance ceded
2. Audit Premiums where final prem is unknown until coverage expire.
3. Premium development on reinsurance assumed

Question 4

PREMIUM LIABILITIES

Define General Expenses

Answer 4

Overhead and servicing expenses, not including acquisition expenses