Commutations: Tax Effect (EZ version!)
myID_+
priorDate_+
record_+
WET_+
fadeFactor_
Calculate the change in taxable income for both the insurer and reinsurer due to the commutation.
| quota-share % |
xx% |
| commutation price |
xxx,xxx |
| discount factor - primary insurer |
0.000 |
| discount factor - reinsurer |
0.000 |
| REINSURER'S carried loss reserves (prior to commutation) are higher than the INSURED'S carried reserves by |
xx% |
| primary insurer DIRECT loss reserve |
x,xxx,xxx |
Formulas
change in taxable income for primary insurer
= P – R1d1
change in taxable income for reinsurer insurer
= R2d2 – P
Notation
P
= commutation price
R1
= CEDED carried reserve for primary insurer
R2
= GROSS carried reserve for reinsurer
d1
= discount factor for primary insurer
d2
= discount factor for reinsurer
Step i.1: Net Paid before commutation
| PolYr |
12 |
24 |
36 |
| PY-2 |
---- |
---- |
---- |
| PY-1 |
---- |
---- |
|
| PY |
---- |
|
|
Answer to (i)
Step i.2: Net Paid after commutation
| PolYr |
12 |
24 |
36 |
| PY-2 |
---- |
---- |
---- |
| PY-1 |
---- |
---- |
|
| PY |
---- |
|
|
Step ii.1: Net Ultimate before commutation
| PolYr |
12 |
24 |
36 |
| PY-2 |
---- |
---- |
---- |
| PY-1 |
---- |
---- |
|
| PY |
---- |
|
|
Answer to (ii)
Step ii.2: Net Ultimate after commutation
| PolYr |
12 |
24 |
36 |
| PY-2 |
---- |
---- |
---- |
| PY-1 |
---- |
---- |
|
| PY |
---- |
|
|
