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Actuarial Risk Consultants LLC
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Cash Flow Analysis This
type of analysis is important to a finance department if there is a trust or a
captive insurance subsidiary involved in the risk management program.
The finance department wants to invest the reserves in as long a term
vehicle as possible because interest rates usually are higher for longer term
investments. Again, the potential
variability of the payout is important because one would prefer never to be
forced to liquidate an asset prior to its expected maturity date due to the
potential for an investment loss. Therefore,
portfolio matching to an upper bound of the projected payouts is the most
advantageous way for the finance department to operate.
Some uses of this type of analysis are: ·
Payout
analysis for portfolio timing ·
Present
value analysis to determine the discounted amount of the projected loss reserves
(GAAP accounting practices may permit discounting) |
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