Actually, on second thought, from a pricing perspective, does
risk-adjusted discount rate make any sense? In pricing, you want to
reflect actual investment income not investment income on "risk-adjusted
interest rate."
> -----Original Message-----
> From: Jean-Pierre Gagnon [SMTP:jpgagnon@allstate.ca]
> Sent: Tuesday, January 12, 1999 1:09 PM
> To: 'Lawn,Yin'; 'Part10studygroup'
> Subject: RE: Meyer's paper
>
> I am not sure what article you're talking about. There is no Meyer
> article for Part 10, is there?
>
> Jean-Pierre
>
> -----Original Message-----
> From: Lawn,Yin [SMTP:Yin.Lawn@cna.com]
> Sent: Tuesday, January 12, 1999 10:47 AM
> To: 'Part10studygroup'
> Subject: Meyer's paper
>
> Hi,
> I read the paper on Meyer and found it very interesting. However, the
> paper uses tax assumption prior to 1986 tax reform. I was wondering
> does anyone have any idea how to correct it with the right treatment
> of
> tax. I think you have to start with an assumption whether or not you
> are in the regular tax world or the Alternative minimum tax world.
> You'll need another interest rate(the Fed midterm rate) and industry
> payout pattern to discount your liability for federal income tax
> purpuses. In addition, you'll need to make an adjustment on the unearn
> premium reserves and investment income on tax-exempt bonds.
>
> Questions: Under the tax reform of 1986, do you think Meyer's separate
> treatment of tax on investment income and underwriting profit is still
> valid? Meyer treated them separately as if they were independent of
> each other. However, under tax law of 1986, I don't think you can
> looked at them separately(or can you?). It's almost like you need to
> rewrite Meyer's equation to connect the two taxes.
>
> I have some ideas but can't put them togethers yet. Any suggestions
> or
> ideas will be appreciated.
>
> ---Yin
>
>