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Liquidity Risk - Relevance to Actuaries [32]

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Bullet points include: Shareholders (in a limited liability company) benefit from the ‘solvency put option’. They largely don’t care about size of loss in the event of default (i.e. the LGD). Because they have already lost all that they are going to suffer. Policyholders do care about the LGD. At least they do up to the detachment point at which any further LGD gets passed on to other stakeholders. e.g. Government or industry-wide protection schemes (who thus in turn have an interest in the LGD). Smaller losses may be apportioned differently in a with-profits context

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