Hi, I have attempted the question on analysis of change of BEL in Apr 2021 2(ii), and was thinking on how to answer if the question was asking on analysis of change of S2 Assets instead. I have come up with a rough solution, appreciate if anyone could verify if the components included are correct or anything missed out? Thanks!
Opening adjustments
restate assets to allow for impact due to model changes, regulatory changes etc
Expected change in assets over period
roll forward allowing for expected investment ret ie 'unwind' of RDR (ie RFR)
- reduce to allow for expected mortality, expenses
- increase to allow for expected inflation on asset values
expected change in assets over period including reduction by amount of expected benefit & expense CF during period
Economic variances
impact of difference between actual and expected investment return, inflation, exchange rates
may include changes in asset mix eg change in mix between corporate and gov bonds
may include mismatching profits/losses eg due to lack of long enough bond durations
may include impact of asset transactions eg lead to diff impact on matching adjustment
Changes in assumptions
changes in disc rate used for assets
changes in BE assumptions for future investment returns, inflation and exchange rates
Experience variances
difference between actual and expected over period:
- expense: if there is expense overruns then assets values drop
- mortality: higher deaths means more death benefit paid out
Other variances
capital injections into biz
tax relief on premiums or carried forward tax losses
NB contribution
Assets for any new schemes within period ie premiums received