Risk and Discounted Loss Reserves

Greg Taylor

North American Actuarial Journal, 2004, vol. 8, issue 1, 37-44

Abstract: The author places the discounting of loss reserves for investment income within a financial economics context. This enables the evaluation of a loss reserve containing a security margin, such as to produce p% confidence in adequacy, taking account of both asset and liability risks. This loss reserve is expressed as a multiple of the economic value of the liabilities. If the security margin is defined as the difference between these two quantities, it is found to increase (decrease) withincreasing asset risk for high (low) values of p. Finally, the author provides a numerical example.

Date: 2004
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DOI: 10.1080/10920277.2004.10596127

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