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Chapter 9 Valuation bases Detail - Hyperlink (Discounting (Decide a…
Chapter 9 Valuation bases Detail - Hyperlink
Companies Act accounts
Profit and Loss (P&L) account
General business technical account:
net earned premiums and other income
net claims incurred
net operating expenses and other technical charges
changes in equalisation reserve
investment income
Uncertainty
Caused by:
model used
parameters used
errors
uncertainty of future conditions
Assessing uncertainty actuary will need to:
statistical analysis
sensitivity analysis
scenario testing
judgement
Discounting
Might discount if
Purpose of valuation is suited
don't want excessive prudence
contingencies have been allowed for explicitly
liabilities were not so short to make the effect immaterial
Reserving on a weaker basis, so that
technical reserves are smaller
profit (and tax) are brought forward
apparent solvency is larger
Decide a suitable discount rate after considering
purpose of the accounts
level of prudence wanted
class and currency of business involved
consistency with inflation assumptions
assets held and returns expected
discount rates used previously
impact on tax
Companies Act accounts allowed if
Average expected period before settlement, weighted by claim amounts, for the category of claims is greater than 4 years
assets are available which are appropriate in amount and nature to cover the discounted liabilities
cautious approach taken to assessment of timing and amounts of future cashflows
discount rate justified considering asset performance over the last one and five years