Steeneck

Definition: Process where the future value of an unpaid claim(s) and associated expenses is 'current valued, taking into account financial and non-financial aspects, to accelerate payment and close the case(s)

• 1. Accelerated settlement of the obligation
• 2. Improvement in current "wealth" using entity's perception of value of cash over non-cash assets
• 3. Cash flow for reinvestment or liquidity to deploy for other purposes
• 4. Certain immediate amount is substituted for an uncertain future amount
• 5. Possible admin cost saving associated with monitoring and collection efforts
• 6. Creating a marginal underwriting loss and federal income tax marginal adjustment

• 1. Accelerated settlement, often times ending relationship with buyer
• 2. Improvement in perceived "wealth" when considering financial and non-financial aspects
• 3. Limited attractive cash flow alternatives
• 4. A certain result, not subject to future events such as contract remediation or retroactive legislation or judicial results
• 5. LAE administrative expense savings
• 6. Creating a marginal underwriting gain with a probable adverse current tax consequence

• 1. Definition: Point estimate monetary figure representing the highest value the seller is willing to pay the buyer
• 2. Formula: AP = (AP - Tax Basis Reserve) * Tax Rate + NPV Booked Reserve

• 1. Calculate PV of loss
• 2. Calculate tax basis reserve as total loss * tax basis discounting factor
• 3. Calculate amount of unwind = Step 1 - Step 2
• 4. Calculate PV of Step 3
• 5. Calculate PV of the unwinding of the discount times the US tax rate
• 6. Calculate basis of seller's ambivalence point, i.e., cost not to commute = Step 1 - Step 5
• 7. US Ambivalence Point = (Step 6 - Step 2 * r) / (1 - r) where r = US Tax Rate

• 1. Calculate PV of Loss
• 2. Calculate Tax Basis Reserve = min(Booked Reserve, Step 1 + Provision for Adverse Deviation) * 95%
• 3. Marginal Taxable Income = Step 2 - Step 1
• 4. After Tax Income Generated = Step 3 * r
• 5. Canadian Ambivalence Point = (Step 1 - Step 3 * r) / (1 - r), where r = Canadian Tax Rate