Discounting by Measuring the Asset Liability Mismatch

Traditionally, loss reserves have been discounted by calculating the net present value of a series of projected future payments at some "suitable" interest rate. What constitutes a suitable rate is the subject of much debate and has no simple answer. In this paper we demonstrate a simple technique for determining the present value of the loss and loss adjustment expense liabilities of a company without selecting a discount rate in the traditional sense. Instead the asset and liability cash flows are compared and used to determine the present value.