Lesson 6: Calculation D – Commission & Expense

Calculate Expense

Assumptions used to calculate GAE & ARE comprise 3 components:

Expense assumptions can be organized using the following format on a spreadsheet:

To cater for Inflation effect, the “per policy” component of expense assumptions is adjusted monthly in the cash flow model. The starting point of applying inflation effect varies by company practices, e.g. starting from t = DUR_M + 2 (e.g. inflation factor for t = DUR_M + 1 is set to 1).

GAE are calculated using the following formulas:

ARE are calculated using the following formulas: