With-profits technical provisions

so doing the calculations under one scenario would just give me instrinsic value. but simulations take care of both intrinsic value and time value ?

 

i am sorry but i couldn't understand the above. can you please help me with an numerical example on what calibration we perform and upto risk risk rater? and are we talking about volatility around calibrated risk free rate ?

 

Hi, what if as we declare the bonuses we switch the asset holding to cash and bonds? So at any valuation date, the assets backing the guarantees provided by the basic sum assured and regular bonuses which have been declared to date are being backed explicitly by bonds and cash? In such a case there isn't a chance that these guarantees can 'bite'? Therefore the "cost of guarantees" would only be contributed by future regular bonus declarations?

Or will this not really happen in practice as it'll reduce the potential to meet future bonus expectations?

 

Hello, this is an incredibly helpful thread - thanks for all the insights! I just have one nagging question that may be implicitly covered in the replies, but couldn't seem to figure out myself:

I understand that we need to project forward the asset shares to calculate the cost of guarantees. However, I'm curious about what the SII BEL for a WP contract is as at the valuation date (e.g. today). Is BEL = smoothed AS as at valuation date + cost of guarantees, or do we also project forward the (smoothed) AS and COG (and expenses, premiums) to the maturity date then discount back to the valuation date? Or are both of these somehow equivalent or acceptable approaches taken by companies in practice?

Thanks a lot, and hope my question was clear enough!

 

Thanks a lot for the quick reply Mark.

So could I just confirm if my understanding is correct: for a particular valuation date, the SII WP BEL = (smoothed) AS + cost of guarantees, where

• Smoothed AS is as at the valuation date today (i.e. just a retrospective asset share)
• Cost of guarantees would be calculated taking into account the current and (projected) future bonuses, then comparing this projected guaranteed amount with projected (smoothed) AS at the maturity date, then discounting back to valuation date

Also, just wanted to clarify that the part you mentioned about only considering current guarantees would be referring to the smoothed AS portion?

Thanks so much, and please let me know if I did not interpret your reply correctly!

 

Got it, thanks a lot for your help Mark!