Chapter 11: Analysis of surplus Flashcards
1
Q
Reasons for analysing the change over a year in the valuation surplus: (10)
A
- It shows the financial effect of divergences between actual experience and what is assumed in the valuation basis.
- It shows the financial effect of writing new business.
- Various elements of the analysis of surplus process can provide powerful checks on the valuation data and results, including the checking of surplus for reasonability as well as various consistency checks.
- The analysis may assist in the distribution of surplus by identifying items of surplus that are unlikely to recur.
- The trends in the items of surplus may give useful information on trends in the experience of the company.
- New items identified in the analysis may be used to inform the risk identification process.
- To assist in setting future assumptions.
- To analyse the effect of policy alterations.
- To assist in decisions such as derisking the balance sheet in order to protect solvency levels.
- It is required as part of the statutory returns.
2
Q
The sources of surplus: (16)
A
- Change in valuation assumptions
- Release of compulsory and discretionary margins (IFRS only)
- Release of risk margin (prudential supervision reporting basis only i.e. SAM)
- Expected profit margin on group products (IFRS only)
- Actual vs expected investment return
- Actual vs expected expenses
- Actual vs expected mortality
- Actual vs expected sickness/morbidity/ disability
- Actual vs expected other risk benefits (e.g. retrenchment)
- Actual vs expected withdrawals.
- Actual vs expected charges under unit-linked and unitised with-profits contracts
- Actual vs expected tax
- New business
- Other policy alterations/changes
- Changes in maturity guarantee reserves
- Exercise of options and guarantees.
3
Q
The data used to perform the analysis of change needs to _______ :
A
The data used to perform the analysis of change needs to be internally consistent, as well as consistent with the accounts.
