Chapter 12 (Analysis of change in EV)

Question 1

How is PVIF(1)(Exepected) calculated

Answer 1

PVIF(0) + PVIF(0)*rdr - expected after tax profits

Question 2

Difference in PVIF(1)(Actual) and PVIF(1)(Expected) can mainly be attributed to

Answer 2

-VNB
-Operating experience variance
-Operating assumption and model changes
-Investment return variances
-Economic assumption changes

Question 3

How can you determine the impact of assumption changes

Answer 3

PVIF should be calculated using the start of the year assumptions and end of year assumptions

Question 4

What is the relation between AoS and analysis of change in ANW

Answer 4

They will be equal if the same valuation methodologies are used when considering operating experience variances

Question 5

Considerations before implementing a basis change

Answer 5

-whether past few years’ experience is a better estimate of future experience than the current basis
-whether the recent years’ data is credible
-consider the experience of other companies and if necessary to make assumptions about continuation of trends