Question:

a) State the advantages and disadvantages of discounting technical reserves.

b) Company A and Company B have always had exactly the same portfolio of business, each taking 50% of any risk on a coinsurance basis. In their published accounts, company A sets reserves that are intended exactly to pay for outstanding claims, discounted at the rate of interest the company expects to earn on its assets. Company B's reserves always include a 20% margin for prudence above the amount it believes necessary to pay these claims, and it does not discount its reserves.

Show the differences between the accounts of Company A and Company B, as they would appear to an analyst who was not aware of this information.