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Premium liabilities
- all the anticipated net costs to discharge the insurance company’s obligations with respect to its insurance policies and reinsurance contracts except its claim liabilities
- components include UEP, premium deficiency, DPAE, etc.
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4 categories of premium liabilities
- future claims and adjustment expenses on inforce policies
- administrative costs of servicing the inforce policies (maintenance costs)
- anticipated premium adjustments
- anticipated reinsurance expense or commission adjustments
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Equity in the unearned premiums (EQUP)
- expected profits on the unexpired policies
- EQUP = UEP - Expected losses on UEP - Expenses
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DPAE
- asset which amortizes the prepaid expenses over the policy period, provided that such costs are recoverables from expected profits
- results in a better match between premium (income) and expenses
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DPAE vs EQUP
- if EQUP < 0 and |EQUP| < DPAE, reduce DPAE by amount of deficiency
- if EQUP < 0 and |EQUP| > DPAE, premium deficiency must be booked
- if EQUP > 0 and |EQUP| < DPAE, DPAE reduced to EQUP
- if EQUP > 0 and |EQUP| > DPAE, DPAE booked as is
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