Difference between revisions of "Klann Pop Quiz Old Answer"
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| − | This answer referenced the effect of commuting the losses while ignoring how the price of the commutation would impact the taxable income. As such, the revised answer is a better answer to the ''[Klann.ReinsComm#Klann_Pop_Quiz | Pop Quiz]]''. | + | This answer referenced the effect of commuting the losses while ignoring how the price of the commutation would impact the taxable income. As such, the revised answer is a better answer to the ''[[Klann.ReinsComm#Klann_Pop_Quiz | Pop Quiz]]''. |
:* The primary insurer's tax benefit '''<sub>p</sub>T''' should be '''positive'''. In a commutation, the primary insurer is taking back a group of claims. That causes a shift in their balance sheet from assets to liabilities, which is a shift from taxable to non-taxable income. | :* The primary insurer's tax benefit '''<sub>p</sub>T''' should be '''positive'''. In a commutation, the primary insurer is taking back a group of claims. That causes a shift in their balance sheet from assets to liabilities, which is a shift from taxable to non-taxable income. | ||
:* The reinsurer's tax benefit '''<sub>re</sub>T''' should be '''negative'''. In a commutation, the reinsurer is getting rid of a group of claims. Their balance sheet shift is the opposite from that of the primary insurer. The reinsurer's balance sheet shift is <u>from</u> non-taxable income <u>to</u> taxable income. ''(So for the reinsurer it isn't really a tax benefit; rather it's a tax penalty.)'' | :* The reinsurer's tax benefit '''<sub>re</sub>T''' should be '''negative'''. In a commutation, the reinsurer is getting rid of a group of claims. Their balance sheet shift is the opposite from that of the primary insurer. The reinsurer's balance sheet shift is <u>from</u> non-taxable income <u>to</u> taxable income. ''(So for the reinsurer it isn't really a tax benefit; rather it's a tax penalty.)'' | ||
Latest revision as of 13:15, 9 April 2023
This answer referenced the effect of commuting the losses while ignoring how the price of the commutation would impact the taxable income. As such, the revised answer is a better answer to the Pop Quiz.
- The primary insurer's tax benefit pT should be positive. In a commutation, the primary insurer is taking back a group of claims. That causes a shift in their balance sheet from assets to liabilities, which is a shift from taxable to non-taxable income.
- The reinsurer's tax benefit reT should be negative. In a commutation, the reinsurer is getting rid of a group of claims. Their balance sheet shift is the opposite from that of the primary insurer. The reinsurer's balance sheet shift is from non-taxable income to taxable income. (So for the reinsurer it isn't really a tax benefit; rather it's a tax penalty.)
