The Actuarial Practice of Oliver Wyman surveyed its clients regarding discounting of casualty reserves for financial reporting. This survey is intended to answer the following questions:
- What percentage of companies booked a discounted reserve for unpaid losses in 2020 in financial statements?
- If booking a discounted reserve, is the interest rate tied to market rates or set to some fixed percentage not market-driven?
- What interest rate do companies use to discount, and how has that changed from last year?
In 2020, 25% of our clients surveyed booked a discounted reserve.
Of those, 71% tied their interest rate to a market rate.
Of our survey participants, the average interest rate used to discount was 2.26%. The average discount rate in our prior study was 3.04%. As a point of reference, the yields on three-year U.S. Treasury Securities decreased 1.55 percentage points during the same time period.
Please note that the survey above is intended for informational purposes only. Moreover, this survey is not intended as a recommendation on the part of Oliver Wyman as to the appropriate rate to discount casualty insurance unpaid losses.