Description: The author refers to a separate article in this edition of Risks and Rewards, in which Babbel, Gold and Merrill provide an excellent exposition of three approaches to present-valuing a series of risky cash flows and provide several insights into the way modern finance theory deals with risk. The purpose of this article is to bring these insights to the world of insurance risks and view them in relation to existing actuarial techniques. The author also discusses direct discounting and the actuarial appraisal method and their consistency.

Description: The author notes that “current market value is highly relevant, but its accuracy is limited. Historical accounting, on the other hand, is highly accurate, but is of little relevance.” The article then goes on to discuss two leading methods for performing fair valuation of liabilities: the actuarial appraisal method and the option pricing method, and how they can be reconciled.

Description: This article uses the example of a bullet or general account GIC to determine the fair value of liabilities.

Description: Research is a primary mission of the Financial Reporting Section and is the largest use of section dues. This scorecard will keep section members informed about research projects sponsored or co-sponsored by the section.

Description: “It’s interesting to note that, given the past year’s reversal of fortunes in the stock markets, all the media rap about heated inquiries around back-dating options has stopped.”