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Chapter 21 - Expenses Practice Questions

Terms in this set (15)

Staff costs:

- various depts. are likely to deal with several classes of businesses, so we need a way to allocate expenses to classes of business to allocate to the annuity business

- this could be done by timesheets, staff timesheets spent on working on different products

- support function tasks can be allocated in the same proportion as the direct expenses

In terms of loading these expenses;

- sales and marketing would be % of single premium

- underwriting: one of initial monetary deduction based on the SA or % of premium

- NB: one off initial expenses p/policy

- renewal: regular deductions from the annuity payments

* support function expenses will be allocated between categories in proportion to overall allocation of other dept.

Determining the size of loading

for the % of premium:

divide the total annuity '% of a single premium' by total annuity new business single premium written in that business period

for the one-off monetary deductions:

divide the total 'one-off initial per policy' by total number of NB policies written over that period

for regular deductions from the annuity payments

divide the total 'regular deductions from the annuity payments' by total existing policies handled in that business period

Buildings' and computer cost:

- for buildings we allocate the expenses by dividing the floor by depts. that use it, if the company owns the property then it's an asset and should be earning rent

notional rent is charged

- for computer costs, then this could be done by 'charging out' the costs, this is done by charging based on the time the dept uses

- one off computing costs could be amortised over regular payments

- buildings and computer costs can then be split out by class of business according to the salaries of the employees in that dept.

- allocated for expense loading by using the split for staff costs