Chaoter 32 - Provisions

Question 1

Provisions

Answer 1

To meet future liabilities

Question 2

Calculating individual provisions

Reasons

Answer 2

Determining value of liabilities for published accounts
Demonstrating supervisory solvency
Determining the value of liabilities for internal management accounts
Valuing the provider for merger or acquisition
Determining whether discretionary benefits can be awarded
Setting future contribution levels for a benefit scheme
Valuing benefit improvement for a benefit scheme
Calculating discontinuance benefits
Influencing investment strategy
Providing disclosure information to benificiaries
To provide for expected credit losses for a bank

Question 3

Calculating global provisions

Purpose

Answer 3

Act as additional protection against insolvency
Cover risks, financial and non financial, cannot necessarily be attributed to individual contracts
Reflect degree of mismatching of assets and liabilities

Question 4

Different bases

Answer 4

Optimistic
Best estimate
Cautious

Question 5

Factors affecting the choice of basis and valuation method

Answer 5

Reason for valuation
Needs of the client
Regulation and legislation

Question 6

Setting assumptions with regard to purpose

Answer 6

Published accounts - going concern or break up, true and fair view, best estimate or prudent
Supervisory solvency - degree of prudence
Internal accounts - best estimate
Liability transfers - best estimate
Determining whether discretionary benefits can be awarded - cautious
Setting contribution levels - obiectove of parties concerned
Calculating discontinuance benefits - best estimate
Setting investment strategy - realistic, Stochastic
Disclosure information for Beneficiaries - realistic

Question 7

Setting assumptions with regard to the client

Answer 7

Consider clients risk appetite and interactions with other stakeholders