Method and apparatus for funding a future liability of uncertain cost
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United States of America Patent
Stats
-
Jun 21, 1988
Issued Date -
N/A
app pub date -
Apr 9, 1986
filing date -
Mar 8, 1984
priority date (Note) -
Expired
status (Latency Note)
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Abstract
A method and apparatus are provided to fund a certain future liability of uncertain value and thereby defease fully its future cost. The method is an insurance investment plan which can be implemented using a floating rate zero coupon note obligation the interest rate on which varies automatically with the rate of inflation or the cost of some specified service or commodity which gives rise to the future liability, and the interest payments on which are automatically reinvested. The system projects the expected future cost of the liability based on a projected escalation rate associated with a certain specified index and based also on when the liability is expected to come due. It then calculates the present value sale price on the floating rate zero coupon note by discounting the expected cost at maturity at a rate that represents the insurer's projected reinvestment yield net of an insurance risk premium.
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