IFRS-DR_1 Problem Set (Half Year Shifts)
Question 2 & 4
can you explain this .5 shifting? I understand the .5 shift for discounting, because AY mid-term is half the year.
But taking avg of t and t+1's CF to convert to IY is confusing me.
It looks like you're new here. If you want to get involved, click one of these buttons!
Question 2 & 4
can you explain this .5 shifting? I understand the .5 shift for discounting, because AY mid-term is half the year.
But taking avg of t and t+1's CF to convert to IY is confusing me.
Comments
Sorry which file are you referring to? This is not one of the sample questions
One of the excel file downloads... The name of file is in subject
Why are we taking the avg in step 2b from 2a?
-> But why are we shifting the CF 'back' by half a year?
I guess the discounting makes sense bc you are moving from half yr accidents to time 0, but the CF avg is weird.
You are allocating the cash flows to issue years in step 2. Think of it this way: For claims in AY 2022, half of them will be for policies issued in 2021 and half will be from policies issued in 2022 on average, assuming uniform writing of premium. This is why it makes more sense to discount by issue year rather than by AY
I think you meant 2021 for one of them?
makes sense
yup I meant half in 2021 and half in 2022
I wonder how do we know whether to use Issue Year vs Accident year?
@uwt3yao111 I had the same question, and I assume it is because it says "RA applied to issue year" in the question and since RA is part of the FCF that it is asking for. Not sure if there would be a question where it says accident year instead of issue year though, or if this is always the case.
Usually it would be pretty obvious (i.e. they will specifically call out to use issue year). Otherwise you will be fine to just use AY if nothing is said.