I am working on Net Premium Reserve Method used in PBR and I am not able to understand the meaning of this
“The reference interest rate R for a calendar year shall equal the lesser of
the average over a period of 36 months and the average over a period of
12 months, ending on June 30 of the calendar year preceding the year of
issue, of the monthly average of the composite yield on seasoned corporate
bonds, as published by Moody’s Investors Service (MIS).”
Can someone explain me this in a simpler form, probably using a mathematical equation or using an example? Thanks
I have also attached the screenshot of VM-20 for your reference.
Here’s a shot at it.
I believe Moody’s rates are published monthly. So let’s suppose you want the reference rate for 2020 issues. For either average, the last one you want is the month ending June 30, 2019. So for 12 month period, take the rates for the months ending July 31, 2018 thru the month ending June 30, 2019. Add them up and divide by 12.
For the 36 month period, same thing but the first one you want is the month ending July 31, 2016. Now there are 36 values, so add them up and divide by 36.
I’m retired, not involved with this, haven’t looked at PBR or VM-20 recently.
I believe there is a thread that has the Moody’s rates.
also here is a link to someone who does it for current years. You can use that to compare.
There is also a spot on the NY State DFS where they have these averages already calculated.
The appendix link to the pdf with moody’s averages.