Feldblum: Reserve Discounting Flashcards

1
Q

Statutory accounting definition of incurred losses

A

Paid losses + change in full value reserves

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2
Q

Tax accounting definition of incurred losses

A

Paid losses + change in discounted reserves

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3
Q

Economic income

A

PV (future premiums) - PV (future losses)

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4
Q

Three components to discounted loss reserves

A

Undiscounted loss reserves (Schedule P part 1 – include tabular discounts)
Discount rate (from Treasury)
Loss payment pattern by LOB

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5
Q

Discount rate for discounting reserves

A

60 month moving average of “federal mid-term rates”

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6
Q

IRS discounting procedure assumptions

A

Payment date of 7/1

10-year loss payment pattern (Schedule P), with a 5-year extension for long-tail

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7
Q

Why IRS uses Part 1 instead of Part 3 (Schedule P)

A

Part 3 only contains DCC
Part 1 is audited
IRS method does not involve judgment

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8
Q

Determination year

A

Occurs in all years ending in ‘2’ or ‘7’, insurer chooses to use either own (updated every year) or industry payment patterns (vintaged until next determination year)

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9
Q

If company uses own payment patterns in discounting reserves

A

Derived from most recent Schedule P data available before beginning of AY (Ex: ‘02 would us ‘00, etc.)

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10
Q

Loss Reserve Discount Factor

A

(Discounted unpaid loss as % of incurred losses) / (Undiscounted unpaid losses as % of incurred losses)

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11
Q

Extending prior years row, discounting

A

Paid in 11th year cannot exceed incremental paid in 10th year, and so on and so forth, with any excess amount paid in the 16th year

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12
Q

Discounting, two-year lines

A

Excess paid after two-years is assumed to be paid equally over years three and four

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