Premium Liabilities Formula

willm7willm7
in CIA.CSOP

Hi,

In the wiki article, premium liability is defined as

[ PV(claims, related expenses, future taxes, premium development) – DPAE ] @ calculation date incurred after that date on policies in-force on/earlier than that date

However, I don't think we should subtract DPAE here. In the source text, they say that premium liabilities represent:
"The amount of the premium liabilities (after deducting any deferred policy acquisition expense asset) should be equal to the present value, at the calculation date, of cash flow on account of premium development and of the claims, expenses and future income taxes, including provision for adverse deviations, to be incurred after that date on account of the policies in force at that date or an earlier date."

I feel that what they mean here is more something like

Premium Liability = UPR - DPAE = PV(claims, related expenses, future taxes, premium development) (I am ignoring reinsurance here for simplicity)

Also, this seems more consistent with what we can find in CIA.PrLiabs.

Can anyone confirm whether or not my understanding is correct?

Thanks!

Comments

  • Staff-T1Staff-T1
    edited April 2022

    Yes, this is my understanding of Premium liabilities and the source confirms it. @graham thoughts? Although quick note that with the transition to IFRS 17 I believe this is the last time this will be tested

  • grahamgraham

    I think @willm7 is correct, but unless I'm misreading the source text, I think the formula I wrote matches the verbal description in the paragraph. It looks to me like the verbal description provided in the CSOP reading is not accurate?

    In any case, I replaced the premium liabilities formula in the wiki (and the corresponding BattleCard) with the above paragraph from the CSOP source text.

  • willm7willm7

    Thank you @graham and @Staff-T1!

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