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sep 2018 q1 vi

C

Cynthia Foong

Member
Hi

For September 2018 Q1 part (vi), on the scenario of increase in equity, the answer for the sensitivity on SCR states that the Equity Risk SCR will increase due to there being higher exposure to equities. This makes perfect sense, but I'm wondering if I could bring it further to talk about the change in liability, but I'm not sure if the sentence below makes sense. Would love your opinion on it.

With a higher equity market value, fund value increase, so charges increase, therefore reducing BEL. With lower BEL, the equity risk SCR will reduce, as we are starting from a lower starting point. This impact, however, is likely to be smaller than the change in asset value.
 
Cynthia Foong said:
Hi

For September 2018 Q1 part (vi), on the scenario of increase in equity, the answer for the sensitivity on SCR states that the Equity Risk SCR will increase due to there being higher exposure to equities. This makes perfect sense, but I'm wondering if I could bring it further to talk about the change in liability, but I'm not sure if the sentence below makes sense. Would love your opinion on it.

With a higher equity market value, fund value increase, so charges increase, therefore reducing BEL. With lower BEL, the equity risk SCR will reduce, as we are starting from a lower starting point. This impact, however, is likely to be smaller than the change in asset value.
Click to expand...
Hi Cynthia

Yes, this makes sense but it would have a smaller impact on the SCR than the increase in the equity stress from the higher exposure to equities.
Where it does have a bigger impact is on the own funds as it will reduce BEL and so increase free surplus. Hence, within the solution, it was mentioned under the 'own funds' section rather than the 'SCR' section.

Hope this helps.
Thanks
Em
 
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