discount factor vs interest rate
if it was up to the insurer to decide what their own discount factor that gets used on loss reserves was, would they prefer it to be low or high? Why?
My thought process is they would want their TBI to be low, which means low projected InvInc and high projected TBIL. This happens by using a low projected interest rate and a low discount rate. Something feels wrong about this line of thinking, could you please clarify?
Comments
High TBIL is effected with a high discount factor, which is the result of a low discount rate. Remember that discount factor is less than 1. So, yes, what you say is correct.