When there are conflicting PD ratings, which rating must be used for estimating future liabilities?

• A. Lower rating
• B. Higher rating
• C. Average rating
• D. Most recent rating

Answer: (B)

Use the higher PD rating when there are conflicting probabilities of default. The PD (probability of default) gauges the likelihood the plan may not meet its future obligations, so choosing the higher rating adopts a conservative stance, ensuring reserves are large enough to cover more risk. This protects solvency and aligns with prudent actuarial and regulatory expectations. A lower rating would understate risk, averaging can dilute the impact of worst cases, and relying on the most recent rating might miss longer‑term risk trends. For example, if one rating implies a 2% default risk and another 6%, using 6% leads to higher estimated liabilities and stronger reserves, which is the safer approach.