I think the arguement is where to book the risk magin....
My understanding is that it does not fully recognize the time value of
money because the entire discount did not enter surplus. You are
holding a liability greater than the present value, you have just split
it into separate accounts.
This is my interpretation, if someone has a better understanding, I
would like to have this clarified as well.
jimshoenfelt@amdyne.net on 08/18/98 11:52:53 PM
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From: jimshoenfelt@amdyne.net
Date: 08/18/98 11:52 PM
Subject: Risk Margins for Discounted Loss Reserves
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This paper says that an argument against booking a risk margin as a
liability item is that it fails to fully recognize the time value of
money. Can someone explain this to me? I don't see how adding a risk
margin fails to reconize the time value of money - especially since a
risk margin would generally be accompanied with discounted reserves. P.
150-151
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