CIA Discounting

The flashcards below were created by user ED_6C3 on FreezingBlue Flashcards.

  1. 3 fundamental elements of discounting
    • selection of payment patterns
    • selection of discount rates
    • application of margins for adverse deviations
  2. Considerations for selecting which of net / gross / ceded to estimate directly
    • data availability
    • reinsurance program
    • cashflow volatility
    • discount rate
  3. Selection of payment patterns
    • group claims in homogeneous groups, considering
    •    payout period
    •    existence of predetermined schedule
    •    groupings used for valuation of undiscounted liabilities
    • from company’s historical loss to ultimate ratios or directly from paid loss development
    • may supplement with other related or external experience
    • consider timing of expected salvage, subrogation, loss transfer amounts
  4. Selection of discount rate
    • rate of return earned on the assets which support the policy liabilities
    • portfolio yield rate: IRR producing book value at a future date of corresponding assets
    • consider assets supporting liabilities, reinvestment risk, liquidity risk, investment expenses
  5. Discount rate for estimation of ceded present value
    • discount rate selected for NPV (portfolio yield rate), if can support gross liabilities
    • risk-free rate: current new money rate for risk-free asset with appropriate duration
    • discount rate used by assuming company e.g. cessions to affiliated company (POV)
    • consider timing of payments of reinsurance premiums and earning period of unexpired portion of in-force policies
Card Set
CIA Discounting
Show Answers