LRC( onerous) in excel file

user1user1
in CIA.Duration

In the App C Sh - 1 LRC onerous tab, in the effective duration calc, how come the RA is not just the Disc FCF using the discount rate + 0.1% multiplied by 10% margin? Like what was done in the effective duration calculation in App B Sh 1- LIC ?

Comments

  • Staff-T1Staff-T1

    Check the formula correctly, it is discounting the FCF using the VLOOKUP formula

  • GogogoGogogo

    it is not discounting the FCF but discounting the Future Claims & Claims Exp in the excel file, can you confirm which one is correct?

  • Staff-T1Staff-T1

    It is discounting the Future cash flow? FCF = Future claims * RA. The RA is just a scalar

  • caitlin1234caitlin1234

    I am also unclear on this. Here, the RA = PV Future Claims & Claims Exp x 10%. Why is the maintenance cost and premium received not included?

  • Staff-T1Staff-T1
    The risk adjustment is meant to be a buffer for uncertainty - there's uncertainty in claims, but not in the premiums and acquisition costs since those are known upfront and don't have any variability in them which is why you don't need to apply an RA to them
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