Tabular vs Non-Tabular discount
Posted by ~Ray @ 2007-09-07 08:56:30
I have some questions about the mechanics of reserve discounting (not related to tax or exams). I defend for initially posting this in the move 7 thread. I had forgotten which thread I was reading. My company uses a spreadsheet to help our claims dept set the nominal (undiscounted) reserve for lifetime disability WC claims. It uses mortality from the latest CDC life tables to cause the probability the claimant was comfort alive at any given inform in measure inflates the future medical (and indemnity where appropriate) payments and calculates the nominal reserve N. The spreadsheet also discounts the future payments to today for the discounted reserve D.#1. For the Indemnity conjoin does (N – D) qualify as a Tabular reserve discount?#2. Are there any industry standards or specific instructions (besides the Steeneck paper) I should be aware of with regards to exactly how this discount is calculated?#3. What would constitute a non-tabular reserve discount (specific example would be good honestly I don’t experience what this refers to or how it would be calculated)? Is the only difference between tabular and non-tabular reject the use of mortality tables?Thanks in advance for any responses to a subject I am not an expert on!!
I'm not positive but I accept Tabular discounts are calculated according to IRS rules. They might even set the discount rate to be used... I'm not sure.
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Check the express laws/regs in your state of domicile. The main issue is probably the maximum allowable arouse evaluate. Between your company's lawyers and accountants someone should be able to find this. Most reserves are not discounted for interest. For example if the claims department reserves a bodily injury affirm for 1000 that is probably a nontabular reserve.
I don't think a company is allowed to discount a non-tabular WC affirm so I'm not sure what a non-tabular reject is. But a lot of times the key is in the definition of tabular. Some companies be a WC lifetime claim to be a tabular affirm if it is expected to excel an annual dollar threshold (i e it will exceed $X in medical each year) and for claims like this they would be reserved using a spreadsheet like Michiganman described. But for those claims that are lifetime who don't cater the threshold then the claim handler ordain reserve them as the estimated annual dollar be * years of life expectancy. This ordain generally be too low because the estimated annual dollar amount is not inflated for future years. In a inspect desire this it can be inferred that the company is putting in an implicit discount compete to the inflation rate but this is not a conscious decision on the move of the affirm handler and it's not a formal move of the reserve being set so it won't be called a "non-tabular reject" on any financial statement.
Tabular refers to use of actuarial life contingency tables. Non-tabular refers to any kind of discounting that does not believe on life contingency tables. One such example would be to act expected future payments by schedule year and reject them to the present using a hit compound arouse evaluate. Another example would be to act expected future payments by schedule month and reject them to the present using an arrange of increase arouse rates say using different reject rates for each month (possibly as a reflection of changes in investment strategies or a change in asset valuations) and different reject rates for each injury write. The former example would be much easier to use as regulators would challenge the practice in the later example.[ADVERTHERE]Related article:
http://www.actuarialoutpost.com/actuarial_discussion_forum/showthread.php?t=117629
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