Pitfalls of IRR Pricing - Actuary.com
Pitfalls of IRR Pricing - Actuary.com
Pitfalls of IRR Pricing - Actuary.com
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Risk Exposure Inherent in Thin Cash Flows<br />
Be fore After Before After<br />
Capital Sol ution Ca pital Solution Ma l-Experience Capital Solution Capital Solution<br />
Impact<br />
<strong>IRR</strong> 8.0% 15.5% 7.0% -26.3%<br />
PV Pr<strong>of</strong>its $159 $13 $118 ($28)<br />
FY Investment: 1,000 100 1,005 105<br />
1 (1,000) (100) (5) (1,005) (105)<br />
2 223 150 (5) 218 145<br />
3 201 150 (5) 196 145<br />
4 181 100 (5) 176 95<br />
5 163 50 (5) 158 45<br />
6 146 50 (5) 141 45<br />
7 132 (50) (5) 127 (55)<br />
8 119 (100) (5) 114 (105)<br />
9 107 (150) (5) 102 (155)<br />
10 96 (165) (5) 91 (170)<br />
Impact <strong>of</strong> GAAP on Humphrey Term Distributable Earnings<br />
Statutory<br />
GAAP<br />
Before After Before After<br />
Capital Solution Ca pital Solution<br />
Capita l Solution Capital Solution<br />
<strong>IRR</strong> 8.0% 15.5% Net GAAP Impacts<br />
PV Pr<strong>of</strong>its $159 $13 $301 ($53)<br />
FY Investment: 1,000 100<br />
Before CS Afte r CS<br />
1 (1,000) (100) 1,040 93 40 (7)<br />
2 223 150 (185) (157) 39 (7)<br />
3 201 150 (164) (157) 37 (7)<br />
4 181 100 (143) (107) 38 (7)<br />
5 163 50 (126) (56) 37 (6)<br />
6 146 50 (113) (56) 33 (6)<br />
7 132 (50) (97) 44 35 (6)<br />
8 119 (100) (82) 94 36 (6)<br />
9 107 (150) (71) 144 36 (6)<br />
10 96 (165) (59) 158 37 (6)<br />
8
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