Expectation differently

Hello, friends.

If you were given $1 million, would you consider yourself rich?

What if you were told that for the next 20 years, this is the only money you will get? Would you still consider yourself rich? What would you do?

One strategy could be to purchase the latest version of the Aston Martin DB12 (https://www.astonmartin.com/en/) and use the remaining funds to travel the world. However, you might exhaust your money before the end of 20 years.

An alternative approach would be to distribute the $1 million over 20 years, providing you with an "annual income" of $50,000. You could also break this down further into monthly installments, which would equate to approximately $4,167 per month.

What if the time period changed to 10 years? Using the latter approach, you could say $1 million per year converts into $100k per year, or $8,333 per month.

What we have done here is taken the amount of available capital (or we could say IBNR if we were speaking about AvE) and projected it into a cash flow for the next 10 or 20 years.

Essentially, when actuaries perform their Expectation (E in AvE) calculations, that's what they are doing.

Until next time.

Cheers