CIA - Runoff

Question 1

Describe the methods to handle the time value of money in claims runoff. (2)

Answer 1

• DISCOUNTING:discount the paid and unpaid amounts at time (t) back to time (t-1)
• SUBTRACTION: subtract investment income earned during the CY(t) on supporting assets & liabilities.
  Note: that the Subtraction method is easier than the Discounting method.