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All you need to know for non-BLAGAB losses is what is in the Core Reading: Accounting losses can be used to offset profits in other tax years or...
It is likely that the duration of the annuity liabilities is longer than that of available assets and so an interest rate fall will increase...
Do you mean if interest rates go up, does the value of the bond fall? If so, yes. But it is not a risk for the company as there is no guaranteed...
Under EV Solvency II, the idea is that due to assumptions being best estimate there are no release of prudential margins within the BEL. So yes,...
A company will base these calculations on a fund basis, not an individual basis.
If a company is in an XSE position then they will have losses to carry forward on their BLAGAB business, which they can use to offset their I in...
Yes that's a fair observation, but this is likely to be relatively second order.
Yes as it is actual inflation being applied but if the inflation rate used in the future were to change then this would be an assumption change.
If expense inflation has been higher (or lower) than expected over the period, the end-of-period BEL will be higher (or lower) than expected as...
Risk margin is specifically referring to Solvency II. The justification for including its release as PVIF is because it will no longer be needed...
There is no reinvestment risk as the bonds do not have to be repurchased once there is a surrender. The policyholder will just receive the value...
The projection basis are the future experience assumptions used to calculate the future cashflows within the embedded value model, whereas the...
Hi Niamh The solution takes out R as the factor and then multiplies it by the sum of all the factors applied to R in the previous line: ie,...
Hi Tina Let me try and explain: To calculate such a plan, we can either sum: an endowment of 10,000 and a pure endowment of 10,000. So 10,000...
Hi Tina Can you tell me which particular bit you are not sure about? Thanks Em
Yes, you are correct, it is net of tax. The yield will include any gain made on redemption. When trying to find the net effective yield, we...
Be careful here, we are specifically referring to those products which fall under BLAGAB business, eg endowment assurances, where the investment...
Ah sorry, I missed these parts. 1) Without profit policyholders should not benefit from the inherited estate as they are without profits and...
Topical issues update for 2024 exams Please see below a list of topics which you may wish to look further into. Please note, this is not a...
Sorry, maybe I have added confusion within my last comment. We have been asked for the contribution to the estate from new business strain. New...
Hi If we think of profit or loss arising being due to actual being different to expected, if our expected is the basis, and if this changes (ie...
Hi Yes, UWP funds can be an investment choice for a unit-linked customer, just like an equity fund or a property fund.
Hi Your projection basis depends on a company's EV basis, it is not prescribed by regulation as the regulatory basis. Yes, they are likely to...
Remember when valuing the liability, you wouldn't take the market value of those backing assets but when valuing the assets you would. And in...
When using a market-consistent approach to value the liability, it doesn't matter what is actually backing the liability. There are two main...
With regular / reversionary bonuses, once declared are guaranteed so that is why cost of guarantees go up with bonus declarations as the...
So, yes they can price UL policies on a real-world basis and still be compliant with Solvency II.
A company can price how they like, Solvency II is about how they value the company to demonstrate solvency.
If pricing on a risk-neutral then the expected investment return will be the risk-free rate and the variation around the mean will be modelled via...
Hi I would take that as the risk would be shared amongst the policyholders whilst they are in the deferment as opposed to when the annuity is paid...
General rule of thumb: if the cashflows depend on the value of a defined pool of assets then they are measured under the VFA approach. Investment...
Hi I cannot see this question, are you sure it is from Sept 2016? The reason is due to the realistic valuation taking market value including...
If a standard formula is used, assets and liabilities subject to equity risk are only exposed to a fall in the level of equity prices and not to a...
If it leads to an increase in SCR, then yes that is unfavourable in respect of capital requirements.
The 40% stress is applied to a lower absolute value, so (from the example above) instead of a 120 impact, it will have an 80 impact.
In the standard formula if the credit spread widened it is assumed to be entirely due to higher default risk, and because the VA is an adjustment...
This is because, like the non-unit fund of a policy, it needs to meet guarantees in excess of charges.
The impact from new business through the year will have its own step and any return from NB will be analysed at this stage.
Sorry, not sure I understand. The question is asking why they decided not to enter the market? This is because the stream of future expected...
If they are in the money then the policyholder is already benefiting from the GAR, if the company enhances their asset share further (from estate...
Hi Yes, we calculate the impact on net assets and PVIF separately. Regarding expense variances, if expenses are more than expected, then this...
You seem to have a sound understanding. However a few points to note: Economic variance: Also be mindful that the change in economic variance...
Hi In the UK, it is only in relation to BLAGAB business. The worked through example in the course notes (Chapter 6 pages 17-19) provides a...
It will all depend on what (if any capital requirement) is included in the definition of the net assets. If net assets is defined as {assets -...
True
Hi Yes, this is right and was what i was referring to above when I stated 'And, if the company contained with-profits business then you would...
Yes and so the discounting will have a bigger impact
Yes, as bond values will fall and (if there is no matching adjustment), the value of the BEL will remain unchanged, and so the net assets will...
Yes, correct
By selling as a with-profits policy in a 90:10 with-profits fund, for example, the longevity risk will be shared between policy and company 90:10.
Hi Retrieva and Goh Ze Liang Great discussions, and I don't disagree with anything you are saying here. For a non-profit closed-book, you can...
Higher mortality than expected will have the biggest impact on the term assurance as payments are guaranteed and dependent on death. As the...
If assets and liabilities were 100% matched, then a fall in yields on the bonds would increase value of the liabilities but would also increase...
You could think about it as 10% less is paid out in asset shares and put into a smoothing account in the estate so should be positive. However,...
Hi These are no longer in the course and therefore question 2 (parts i and ii) are no longer examinable. Thanks Em
This is because this is the rate the asset would earn, ie the investment return would incur a tax charge of 20% so the asset would only earn a net...
hi The latest version of ASET will have the latest exam in so you may want to purchase to get access to the September 2022 paper. The 2014-2017...
It is just different ways of going about the calculation but they should give you similar results: One way is projecting asset share and comparing...
It depends what the company practice is, it could go to either. The surrendering profit is a possible component of the asset share calculation....
Basically, the claims and expenses will be paid from the premium and assets backing the reserves and any prudence in the reserves would then be...
Hi Yes, I agree with the above in the fact that the bond market can be distorted and not necessarily comparable amongst jurisdictions. The swap...
Hi Chris Trusts are no longer in the course so you wouldn't need to know the detail. Many thanks Em
The reserve should include all guarantees including guaranteed maturity benefits.
The PVIF would fall as you would be paying out future profits to the reinsurer. Therefore the net impact on EEV would be 1000m-P1-PV(P2+P3+....)
Hi A numerical example might help: SCR = ΔNAV= max (NAV - (NAV l shock), 0) For example, if unstressed assets (A0) are 100 and unstressed...
Hi Colin This will depend on the reason for the investigation. If it is a regulatory solvency requirement, such as SII, then the discount rate...
Thank you Rajat Yes I agree :) And to confirm 'cost of guarantee' is cost of guarantee over asset share. And 'the estate' is normally defined as...
Hi Mateuz Yes, you are one the right lines but be careful this is not policyholder income tax, it is tax charged to policyholders but which...
It would depend on the assets this is based on. If corporate bonds, then we assume there is a spread of default and illiquidity over the risk...
Hopefully my above explanation helps explain this. Thanks
Hi This is because I-E is trying to cover both shareholder and policyholder profit and so the premiums received by insurer are negated by the...
Hi The dividend income is added to the I-E result because it is included in the minimum profit and so the comparison is fair. Another approach...
In embedded value calculations, we are concerned with projecting future profits and so with a risk-neutral valuation, the investment return is...
Hi As a way of managing counterparty risk in certain countries, the reinsurer may be required to deposit back its share of the total reserve...
Hi They could be, it will depend on how the estate is defined. The inherited estate is often defined as the excess of realistic assets over...
Hi Unrealised gains on equities are not within the component of BLAGAB. As stated on pages 8 and 9 of the Course notes, I includes only realisable...
Hi If the risk can be hedged then a market value for the matching asset/derivative is used to value the risk. As market values are volatile, the...
This is explained in the capital management chapter and what 1. is referring to: The SPV would effectively separate the cashflows from the...
Securitisation can involve other types of risk transfer, ie repayment may be contingent on other events, not just making future profits. With...
Hi We know that 'interest rates up' must have a negative correlation with other stresses, because the undiversified SCR is positive (800) but the...
Topical issues update for 2023 exams: Hi For the SA level subjects, it is important to keep abreast of current developments in the insurance...
Hi This will be a challenge but if you are committed to putting the hours in, then it is achievable. Note that the recommended hours for an SP...
Yes I agree and, for example, this change in mortality rates will impact on your Solvency II BEL and IFRS fulfilment cashflows (ie reserving)....
Hi The income component of general annuities are taxed in the hands of the policyholder and deducted from BLAGAB income: So higher income, means...
Hi We wouldn't want to suggest looking at a particular link. Rather that you consider reading around these topics. Thanks Em
Yes :) Although I don't quite agree with how you have determined TBs. Generally the aim is to payout the difference between smoothed asset share...
I am assuming you are referring to 'own funds' which is, yes, assets minus technical provisions (and 'other' liabilities). Before stress:...
All this is saying is following the stress, companies would hold less capital due to the impact from the longevity stress and the other...
Yes, the question states that the interest rates are based on swap rates which are what EIOPA base their rates on. Because of the change in...
Yes, future premiums only. So for SP business, the BEL wouldn't include the single premium.
Hi I would advise going through Chapter 11 of ActEd's CMP, to gain a better understanding of the calculation of BEL for WP business. Yes The...
Hi If the valuation is market-consistent, the liabilities would be valued using the risk-free rate (and possibly a matching/volatility...
No, S2 does not have to be followed. PVIF recognises future profits. The unwind represents the change in those future profits due to the fact...
Sort of, the assets will only change by the difference between actual and expected at this step as this is what we are trying to isolate. Plus,...
HI Aman Are you able to be more specific on what you are unclear about? Thanks Em
As explained above customer value is the value to the shareholders of each customer and one way to determine this value is to work out the...
Hi You might find the following thread helpful: https://www.acted.co.uk/forums/index.php?threads/asset-liability-modelling.15725/#post-59790...
Hi Yes, and this is what Section 3.1 is referring to. But (2) is effectively a timing issue as tax will be paid when they become realised gains...
Under Solvency II liabilities should be valued using a market-consistent valuation method. And using a risk-neutral valuation (discounting at the...
Hi I have tried to answer your queries below: This is still market consistent as the model parameters are calibrated to observed market values....