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#81




For some reason DAC is one of the hardest concepts for me to grasp.
From the MATE practice problem #27 (Fall 2013 exam #8bc, with some edits), part a, I don't understand why we subtract 5% off of the listed commission amount. How to we know to subtract 5%?
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ASA 
#82




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#86




EHBs and ACA for selfinsured plans
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I know from practice that selfinsured employers are not required to cover any EHBs; however, if they do, they cannot place annual or lifetime dollar limits on the EHBs. I could not find anywhere in the syllabus that explained the details about EHBs and selfinsured plans. BUT... Remember that employer plans are still required to have an actuarial value of at least 60% (dictated by the ACA) or else they may they are subject to fines. So realistically to get to 60% employers are going to cover most EHBs
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__________________ Dustin Conrad website: www.mateseminars.com email: mateseminars.dc@gmail.com 
#87




PDR calculations
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Your math is correct but I want to make two clarifying points: The first is that PDR's need to be determined by looking at your net gains each year and not in total for the life time of the policy. I think this can be confusing because a GPV is basically looking at the PV of all yearly cash flow. But there is guidance from the HRGM that tells actuaries to look at this on a period by period basis, for important reasons but I will digress on that point. In this particular example, the take away is that the amount of the PDR is saying "hey everyone we expect losses in the short term, they are going to be $35 over the next two years". After that two year period we expect to have gains. So you set up the PDR at the beginning of the year to be 35. The second point is that if you just do a regular GPV you get the answer you got of negative 25 ... the interpretation of that would be saying "hey everyone nothing to see here we are going to be $25 to the good over the life time of the policy so there is no need to be concerned." But in reality you are masking losses in some years with gains in future years. Please note that all of my comments are in regards to this particular question and that determining whether to set up a PDR in reality can be part of the "art" as much as the "science". I hope that helps.
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__________________ Dustin Conrad website: www.mateseminars.com email: mateseminars.dc@gmail.com 
#88




What is a deferrable costs under GAAP?
You all are correct. The 5% is viewed as a cost that can not be deferred because it is the same each year. The costs that are deferrable are the ones that are large in early years and then vanish in later years. First year commissions are a great example of this type of cost. Another example is the upfront cost to pay the UW's who are doing their due diligence to make sure you actually want to insure the risk.
These cost are very expensive up front and so the insurer would like to spread these cost over the life time of the contract, on an accounting basis. Under GAAP accounting rules the DAC allows insurers to spread out those costs. The DAC is created as an imaginary asset that is released over time to pretend like the all of the upfront costs were actually even over the live time of the policy.
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__________________ Dustin Conrad website: www.mateseminars.com email: mateseminars.dc@gmail.com 
#90




Fall 2019 Number 14b.
The question says "assume claims are completely paid after 12 months." I assumed that meant only use incurred dates with 12+ months of runout, ie Jan 2017 and prior, when calculating the development factors. However, the solution uses all of the data in the claim triangle, including FebMay 2017. I did the problem correctly otherwise, so can someone explain what is wrong with my logic? 
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