Which formula correctly defines RTI derived from incurred losses using the indirect method?

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Multiple Choice

Which formula correctly defines RTI derived from incurred losses using the indirect method?

RTI from the indirect method uses the incurred losses adjusted for the effect of discounting the reserve. The adjustment needed is the change in the reserve discount, and you subtract that change from the statutory incurred loss. This reflects how the present value of the reserves evolves over the period while staying on the incurred basis, giving a discounted RTI that matches the indirect approach. Using paid losses would shift to a cash-based measure rather than the incurred basis, and using the change in discounted reserves or adding the adjustment would not align with the standard indirect formulation. The key is subtracting the change in reserve discount from the statutory incurred loss to obtain the RTI.

RTI from the indirect method uses the incurred losses adjusted for the effect of discounting the reserve. The adjustment needed is the change in the reserve discount, and you subtract that change from the statutory incurred loss. This reflects how the present value of the reserves evolves over the period while staying on the incurred basis, giving a discounted RTI that matches the indirect approach.

Using paid losses would shift to a cash-based measure rather than the incurred basis, and using the change in discounted reserves or adding the adjustment would not align with the standard indirect formulation. The key is subtracting the change in reserve discount from the statutory incurred loss to obtain the RTI.

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