Hi there,
Under the Financing heading (within the main answer section and the Additional points section) ASET says the following:
Please could you help me understand these points. I don't understand the second one at all. As for the first one, the surrender value is never greater than 100% of the unit fund, and I thought that given we always hold the unit reserve then we wouldn't need to increase reserves? Or are we allowing for the fact that there's a surrender penalty and so the unit reserve being held is, on this occasion, less than the unit fund?
In my mind the main point about this change is the increased risk of withdrawals (ie there may be many more policies withdrawing with -ve assets shares than before), and so we're facing a potential loss. Except this point doesn't seem to be covered by the solution. So I'm wondering whether this is somehow wrapped up in the meaning of the first bullet?
Thanks,
Matt
Under the Financing heading (within the main answer section and the Additional points section) ASET says the following:
- "The change in surrender penalties may require an immediate increase in overall reserves given that surrender values have increased and reserves may need to be at least as large as those values."
- "The non unit reserves will increase if surrender penalties are explicitly allowed for."
Please could you help me understand these points. I don't understand the second one at all. As for the first one, the surrender value is never greater than 100% of the unit fund, and I thought that given we always hold the unit reserve then we wouldn't need to increase reserves? Or are we allowing for the fact that there's a surrender penalty and so the unit reserve being held is, on this occasion, less than the unit fund?
In my mind the main point about this change is the increased risk of withdrawals (ie there may be many more policies withdrawing with -ve assets shares than before), and so we're facing a potential loss. Except this point doesn't seem to be covered by the solution. So I'm wondering whether this is somehow wrapped up in the meaning of the first bullet?
Thanks,
Matt