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3 fundamental elements of discounting
 selection of payment patterns
 selection of discount rates
 application of margins for adverse deviations

Considerations for selecting which of net / gross / ceded to estimate directly
 data availability
 reinsurance program
 cashflow volatility
 discount rate

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

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

Discount rate for estimation of ceded present value
 discount rate selected for NPV (portfolio yield rate), if can support gross liabilities
 riskfree rate: current new money rate for riskfree 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 inforce policies

