2015 Fall 15 B
Examiners report shows "Net commission incurred = direct commissions incurred – ceded commissions incurred = $1,000 *
10% - $500 * 15% = $25."
Where is the 10% coming from?
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Examiners report shows "Net commission incurred = direct commissions incurred – ceded commissions incurred = $1,000 *
10% - $500 * 15% = $25."
Where is the 10% coming from?
Comments
The second bullet of the problem gives the direct commission amount.
Regarding calculation of EP, why only 8.5 months were earned instead of 9 months? Apr to Dec should be 9 full month and I thought we only assumed earning in the middle of the month for a bulk of uniformly written policy.
This approach is explained on Odomirok page 37:
Another approach that is sometimes used is called the monthly pro rata method. This method assumes that policies are written evenly over the course of the month. Based on that assumption, 1/24 of the premium written in a given month is expected to earn in that month. Subsequent to that, 1/12 is expected to be earned in the next 11 months, and the remaining1/24 is earned in the thirteenth month. This abbreviated method allows for a calculation of the earned premium in each month with less data and calculations.