2007 #8

[Invicta]

The solution use OER as v in the denominator. That can't be correct can it? Because OER includes LAE/Earned Prem.

[Vorian Atreides]

Consider how the Permissible Loss Ratio is calculated (and what it actually means).

And OER doesn't include LAE. LAE isn't an operating Expense. Or, to put it another way, OER includes only those expenses that must be paid whether or not there's a loss. (No loss, no LAE is incurred--theoretically).

Fortunately, you won't be presented a question quite like this. You might be presented information about various expenses (general, other acquisition, commissions, taxes) and asked a similar question.

[Invicta]

On TIA, OER = UW exp. Ratio + LAE / Earned Premium.

It's defined the same way on page 10 of Werner.

[tate]

On TIA, OER = UW exp. Ratio + LAE / Earned Premium.

It's defined the same way on page 10 of Werner.

OER in this context (old syllabus) is variable expense ratio (I'm sure you realized this) .You are quite right with your definition under the current syllabus see ( 2010 - #12) .Because of the syllabus change you will invariably notice some inconsistencies in regards to notation and definitions.

[Invicta]

Thanks guys!
I didn't realize OER is defined differently in the old syllabus. Thanks for pointing that out.