Liability cashflows

Question 1

Liability cashflows - identification

Answer 1

o The assessment and projections of future cashflows
o These are sums of money received or paid at different times
o Both the timing and amount may be known or unknown
o We look at past data to determine probability of events and if there is no data, then
data from similar events is considered
o Cashflows
▪ Look at the point of view you examining the cashflows
▪ What the main cashflows are :
▪ Elements used to describe the cashflows : Whether the cashflows are
▪ Positive or negative
▪ Fixed or real
▪ Known or unknown in amount
▪ Known or unknown in timing and term
▪ The form of payments- lump sum, regular annuity etc.
▪ frequency of payments

Question 2

Liability cashflows - categorization by nature

Answer 2

o Categorising liabilities by nature with the view of then choosing the most
appropriate assets to match each category
o Net liability outgo = benefit payments + expenses outgo- premium( contribution)
income
o Uncertainties in the types of outgo of business
▪ Benefit payment :
▪ contingent on an event – death, accident
▪ subject to quantifying rules ( claims exceed excess)
o Expenses
▪ linked to benefit payment,
▪ linked to payment of premium,
▪ linked to other specific events – systems upgrade , recruitment programmes
o Premium: uncertain in timing, uncertain in terms of being received ( lapse/
discontinuance ), dependent upon uncertain levels of new business / sales