Actuarial Note on Workermen's Compensation Loss Reserves [Discussion]

Mr. Ferguson has given us an admirably clear and concise case for the use of temporary ‘annuities in the calculation of net reserves under excess of loss reinsurance. Mr. Ferguson points out that one should not simply take the primary retention as the net reserve whenever the direct reserve exceeds the retention. In. order to properly reflect the benefits to the insurer of interest earnings and mortality experience, the net reserve should equal the present value of a temporary annuity of period sufficient to accrue benefits equal to the retention. The ceded reserve is then ,the present value of an annuity deferred for this same period. The sum of the two will, of course, equal the original direct reserve. Mr. Ferguson illustrates the situation with examples based upon reinsurance excess of $50,000 and $100,000 retentions.