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Last response. Again, I apologize for the delay.
Butsic believes the full Fisher effect applies, which say that the effect of
the claim inflation rate is exactly offset by an equivalent change in
interest rates at which the higher payments are discounted. Under the
payment date model, these two effects offset each other exactly producing no
change in discounted losses and therefore no change in premium.
Under the accident date model, once the policy is written, and a change in
inflation occurs, it impacts the assets more than the liabilities creating a
benefit to the insurer. This is the conclusion that Balcerak disputes.
-----Original Message-----
From: mvezina@iore.com <mailto:mvezina@iore.com> [SMTP:mvezina@iore.com]
<mailto:[SMTP:mvezina@iore.com]>
Sent: Monday, March 08, 1999 7:49 AM
To: studygroup10@lists.casact.org <mailto:studygroup10@lists.casact.org>
Subject: Butsic - inflation
Under the Payment Date model, why is W'=W? This implies that the decrease
in u exactly offsets the increase in P.
Also, under the Accident Date model, why is W'<W?
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Last =response. Again, I apologize for the delay.
Butsic believes the full Fisher effect =applies, which say that the effect of the claim inflation rate is =exactly offset by an equivalent change in interest rates at which the =higher payments are discounted. Under the payment date model, =these two effects offset each other exactly producing no change in =discounted losses and therefore no change in premium.
Under the accident date model, once =the policy is written, and a change in inflation occurs, it impacts the =assets more than the liabilities creating a benefit to the =insurer. This is the conclusion that Balcerak =disputes.
-----Original Message-----
From: mvezina@iore.com [SMTP:mvezina@iore.com]
Sent: Monday, March 08, 1999 7:49 AM
To: studygroup10@lists.casact.org
Subject: = Butsic - inflation
Under the Payment =Date model, why is W'=3DW? This implies that the decrease
in u exactly =offsets the increase in P.
Also, under the =Accident Date model, why is W'<W?