Hi there, I was wondering if there is any theoretical difference in the calculations of Best Estimate Liabilities and Discounted Profits except for the interest rates? Thanks in advance
Yes, there is a big difference. Firstly, liabilities and profits are two different things. Secondly, best-estimate assumptions are likely to be part of the EV assumptions that are used in the projection of cashflows that are used to project the future profits. Thirdly, reserves are usually projected on a prudent basis and the interest and the change in reserves form part of the profit projection. These reserves are on a stronger basis than the best estimate assumptions. In terms of interest rates, I think you may be implying that you know the difference between the risk discount rate that is used to discount the future profits and the best-estimate interest rate assumption that is used in the cashflow projection.
