Description: Since insurance contract liabilities are uncertain in amount, an estimate is required. And under most accounting frameworks, the estimate of an uncertain amount should contain some sort of margin for uncertainty. This paper provides a mathematical connection between that margin and the market price of risk as measured by the cost of capital. The connection makes use of the theory of utility and an exponential utility curve.

Description: Presented at May 1996 Spring Meeting. Panelists share experiences and discuss alternative approaches to various implementation issues related to mutual company GAAP conversions.