BattleCard 62

GrantMercyGrantMercy
in Freihaut.Reins

Where does this information come from? I can't find reference to it in the source text.

identify 2 financial & 2 non-financial considerations regarding cash flows in a reinsurance commutation

FINANCIAL:
- amount & timing of cash flows
- discount rate applied to cash flows
- payment pattern of cash flows
NON-FINANCIAL:
- court decisions
- life expectancy of claimant
- quality of reinsurer

Comments

  • grahamgraham

    I'm not sure how I came up with that. You're right that the answer is not explicitly in the source text.

    I think it's probably a reasonable question though. The concept of commutation is discussed in the source text and the answer contains things that are also familiar so I think I'll probably leave it in the quiz.

  • GrantMercyGrantMercy

    Thanks for the response. I was curious where it came from as I was trying to get more background on the first two non-financial considerations. All the other ones make logical sense to me. Could you expand on how court decisions and life expectancy of claimant would impact the cash flows of a commutation?

  • grahamgraham
    The life expectancy would affect the liability amount which would in turn affect the pricing of the commutation. And court decisions could change the amount of the compensation, usually by either putting a cap on the compensation, or raising the cap on compensation, and it could be retroactive as well. That again would affect the liability, and consequently the pricing of the commutation.
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