Why do we subtract out 100% of general expenses in 2015-Spring #13 a when calculating Net Income, but we only subtract out half in 2012 Fall #17 a. Do we just state an assumption for this on exam day to avoid losing points or am I missing something?
12.F.17a answer states that 1/2 of general expenses are already included in pre-paid expenses. I would take this as a rule of thumb, whenever pre-paid expenses are provided in the question.
Prepaid Expense Ratio
The ratio that is used to determine the amount of unearned premium reserves representing prepaid expenses is calculated for each line of business separately. It is the ratio of net acquisition expenses to net written premiums (column 1). Net acquisition expenses are calculated as the sum of commissions and brokerage expenses incurred (column 23); taxes, licenses and fees incurred (column 25); other acquisition, field supervisions and collection expenses incurred (column 27); and half of the general expenses incurred (50% of column 29)
This info is given in the context of the PPE in the UEP, for surplus allocation. IEE Part II's profit algorithm does not actually make use of the PPE concept: it applies the different types of expenses one at a time. This question tried to confuse you by giving the expenses in terms of PPE.
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12.F.17a answer states that 1/2 of general expenses are already included in pre-paid expenses. I would take this as a rule of thumb, whenever pre-paid expenses are provided in the question.
Hi from 12F#17a, what are the items typically included in the "PPE incurred"? Thank you in advance.
This is Odomirok's coverage of prepaid expense:
Prepaid Expense Ratio
The ratio that is used to determine the amount of unearned premium reserves representing prepaid expenses is calculated for each line of business separately. It is the ratio of net acquisition expenses to net written premiums (column 1). Net acquisition expenses are calculated as the sum of commissions and brokerage expenses incurred (column 23); taxes, licenses and fees incurred (column 25); other acquisition, field supervisions and collection expenses incurred (column 27); and half of the general expenses incurred (50% of column 29)
This info is given in the context of the PPE in the UEP, for surplus allocation. IEE Part II's profit algorithm does not actually make use of the PPE concept: it applies the different types of expenses one at a time. This question tried to confuse you by giving the expenses in terms of PPE.
After review it again, I completely agree w your above assessment, thank you!
Sure, good luck.