PROFITABILITY

Question 1

What should required capital include?

Answer 1

+ capital over and above reserves whose distribution to shareholders is restricted
+ capital that is legally restricted
+ capital encumbered by the regulator
- it must pertain to covered business

Question 2

What are the 12 EEV principles?

Answer 2

1. EV measures shareholders’ interests in the business
2. Companies must clearly identify what business is covered
3. EV includes free surplus, required capital (minus its cost), and PVIF
4. Free surplus is excess capital not required to support current business
5. Required capital is restricted assets beyond those backing liabilities
6. PVIF is the present value of future profits from in-force business
7. All financial options and guarantees must be explicitly valued
8. New business is clearly defined and separated from in-force
9. Assumptions should be based on relevant past, current, and expected experience
10. Economic assumptions must be internally consistent and market-based
11. For participating business, bonus rates must be modeled consistently
12. Results should be disclosed at consolidated group level