Probably a bit late to ask questions but might as well give it a go.. I'm getting myself confused about whether surplus arises from differences between the premium basis and actual experience or the valuation basis and actual experience. Can anyone explain?
Hi Claire, I'll give it a go The 'actual' surplus to emerge will be the difference between actual experience and the premium basis for with profits contract. Remember that for with profits, the premium basis will deliberately contain margins for prudence so as to 'guarantee' profit distributions. For with profits, I would guess that the valuation basis and the premium basis may actually be very similar because of this. This is distinct from without profits business where we would expect the premium basis to be closer to best estimate (with risk being allowed for through the risk discount rate). Hope that helps (I have only really touched the surface).
