LRC under GMA

MicheleDona

Hi,

if under GMA: LRC= FCF + CSM
and CSM = - FCF initially, wouldnt that mean that LRC will most likely be = 0 under GMA? There is obviously something i am missing here.

If under PAA : LRC= UEP - premium recevable - DAC, how is this a good approximation of GMA if it is set at 0?

is it related to the fact FCF does or doesnt includes premium? I am not sure i understand when it includes premium of not after reading the CAS answer.

thanks,

Staff-T1

Yes at time 0 it would be 0. But, the moment premium is received there is an imbalance in that PV (premiums) is now < PV (Losses) which leads to a positive LRC.

PAA at time 0 = Premiums Received (0) - Earned Premium(0) - DAC (0) = 0

PAA is a more conservative estimation of the GMM as it is always >= GMM for time > 0.

FCF always includes premiums

MicheleDona

thank you