Spring 2016 #27 (a)
I don't really understand why in this problem there is a difference between Ceded Discounted Reserves (Case+IBNR) and Ceded Reserves (Case+IBNR) times the discount factor. How do I know when to use which one?
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I don't really understand why in this problem there is a difference between Ceded Discounted Reserves (Case+IBNR) and Ceded Reserves (Case+IBNR) times the discount factor. How do I know when to use which one?
Comments
That's a good question. I added a short explanation of that to Odomirok chapter 26 on taxes here:
I've also added some explanation, my own solution, and some randomized practice probems regarding that problem to the Klann wiki article here:
Great, thank you! The explanation in Odomirok taxes in conjunction with your solution really helps
I understand that primary ceded undiscounted reserve and reinsurer assumed undiscounted reserve could be the same, but they don't have to. In this problem, we use discounted reserves, and primary ceded = reinsurer assumed = 2.0. Do they just happen to be the same? Or is there something to do with the discounting?
No, nothing special is going on. They ceded and assumed discounted reserves don't have to be the same. This problem just made that assumption to make it easier to solve.
Great, thank you!