Difference between revisions of "ASOP.20"
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|| '''BA Quick-Summary''': <span style="color: green;>'''ASOP 20 - Discounting'''</span> | || '''BA Quick-Summary''': <span style="color: green;>'''ASOP 20 - Discounting'''</span> | ||
| − | * ASOP 20 provides guidance for actuaries on '''discounting unpaid claim estimates to present value | + | * ASOP 20 provides guidance for actuaries on '''discounting claim estimates''', including '''unpaid''' claim estimates and '''future''' claim estimates associated with prospective risk transfer or risk retention, to present value. The standard addresses: |
| + | |||
:* ''the selection of discount rates | :* ''the selection of discount rates | ||
:* ''assumptions on payment timing'' | :* ''assumptions on payment timing'' | ||
:* ''consideration of recoverables'' | :* ''consideration of recoverables'' | ||
:* ''risk margins'' | :* ''risk margins'' | ||
| − | *It also includes requirements for '''actuarial communications''' and '''disclosures''' to ensure transparency and consistency in the discounted unpaid claim estimates. | + | |
| + | * It also includes requirements for '''actuarial communications''' and '''disclosures''' to ensure transparency and consistency in the discounted unpaid claim estimates. | ||
|} | |} | ||
==Study Tips== | ==Study Tips== | ||
| + | |||
| + | {| class='wikitable' style='background-color: navajowhite;" | ||
| + | |- | ||
| + | || Important updates to the June 2023 (from 2011) are these terms: | ||
| + | |} | ||
| + | |||
| + | * "unpaid claim estimate" has been updated simply to "claim estimate" | ||
| + | * "discounted unpaid claim estimate" has been updated simply to "discounted claim estimate" | ||
| + | |||
| + | The 2023 version of ASOP 20 is more comprehensive and detailed compared to the 2011 version, reflecting changes in actuarial practice and standards. The updates ensure that actuaries consider a broader range of factors and provide more detailed and transparent communications. | ||
There are 4 ASOPs: ''(Virtually all of the material in the ASOPs is included in higher-ranked readings.)'' | There are 4 ASOPs: ''(Virtually all of the material in the ASOPs is included in higher-ranked readings.)'' | ||
| Line 67: | Line 79: | ||
: '''risk-free rate''': | : '''risk-free rate''': | ||
| − | : - this is the rate of return | + | : - this is the theoretical rate of return of an investment with '''zero risk''' with respect to payment timing and amount |
| − | : - in practice it would be the rate of return for a | + | : - '''in practice''', it would be the rate of return for a very low-risk investment with a timing pattern similar to the payment pattern for the given claim liabilities |
: '''portfolio yield''': | : '''portfolio yield''': | ||
Latest revision as of 19:56, 21 July 2024
Reading: “Actuarial Standard of Practice No. 20, Discounting of Property/Casualty Claim Estimates,” June 2023.
Author: Actuarial Standards Board of the American Academy of Actuaries
BA Quick-Summary: ASOP 20 - Discounting
|
Study Tips
| Important updates to the June 2023 (from 2011) are these terms: |
- "unpaid claim estimate" has been updated simply to "claim estimate"
- "discounted unpaid claim estimate" has been updated simply to "discounted claim estimate"
The 2023 version of ASOP 20 is more comprehensive and detailed compared to the 2011 version, reflecting changes in actuarial practice and standards. The updates ensure that actuaries consider a broader range of factors and provide more detailed and transparent communications.
There are 4 ASOPs: (Virtually all of the material in the ASOPs is included in higher-ranked readings.)
Estimated study time: 30 minutes (not including subsequent review time)
BattleTable
Based on past exams, the main things you need to know (in rough order of importance) are:
- this reading has not been tested on any exam from the year 2012 to Fall 2019 when the exams stopped being published.
reference part (a) part (b) part (c) part (d) no prior questions
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In Plain English!
| Question: given an undiscounted reserve estimate, what components are required to calculate the corresponding discounted reserve |
- payment pattern (recoverables should be considered when developing a payment pattern)
- discount rate
| Question: briefly describe 3 possible methods for selecting a discount rate |
- risk-free rate:
- - this is the theoretical rate of return of an investment with zero risk with respect to payment timing and amount
- - in practice, it would be the rate of return for a very low-risk investment with a timing pattern similar to the payment pattern for the given claim liabilities
- portfolio yield:
- - this is the average yield on investments within a selected asset portfolio
- - this method provides better matching of liabilities & assets (assuming the timing & value of asset earnings matches the payment pattern of the reserve liabilities)
- selection by another party:
- - the actuary uses a rate selected by someone else
- - the actuary must disclose this (or be held responsible for the selection)
| Question: identify required disclosures related to an actuary's work involving discounting |
- Section 4.1 in the source text for ASOP 20 has a list of 10 items, many of which are obvious. You can give this section of the source text a quick read, but here are a few that Alice picked out. (Remember this is a low-ranked reading so it's likely there will be no questions on the exam.) Now is also a good time to review the memory tricks DAM and CRISIS-LQ from ASOP 41 Communications.
- dates: accounting date, valuation date, review date
- DAM: Data, Assumptions, Methods for the discount rate selection
- uncertainties around the payment pattern
- difference between discounted & undiscounted reserves
- range: if a range of estimates is provided, actuary should describe the basis for the range
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