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View Full Version : US GAAP table 4-3 vs. ACE

Riemann
01-22-2008, 08:25 PM
I am trying to recreate GAAP table 4-3. If I use the ACE manual definition of an Expense Reserve at time t = PV_t(expenses) - expense % * PV_t(Gross Premiums), at time 1, I calculate -6227.78. This is not what the GAAP textbook has (-7599.64).

I was able to match the expense % and all other values besides the two reserves.

Where did the formula in the GAAP textbook originate? The GAAP formula is only using expenses and premium for time 1.

Which is correct, US GAAP or ACE? There are two distinct formulas for the same problem. Am I missing something critical?

Toluca
01-23-2008, 08:31 AM
The ACE formula is correct, but also the GAAP formula. The table 4-3 is an undecremented reserve. They divide by survivorship and when they use the amount again they multiply by survivorship again. if you divide your number by (81948/100000) you should get the same results that the GAAP table 4-3 is showing.

Riemann
01-23-2008, 09:52 AM
OK, thanks.

What is the significance of dividing by survivorship to that year? If there were an exam problem on this, what method would you recommend using?

Toluca
01-23-2008, 12:17 PM
I believe there is no need to divide by survivorship if when use you need to multiply by it again. Sometimes it is easier to see trends and changes without the survivorship factor in the figures.

For the exam I would definitely not divide by the survivorship factor. Also, the formula to use would depend on the already available data. You know how the exams are. Sometimes questions are easy if you use one formula versus another.

Hope this helps