Q1. what is the use of bid price on offer basis and offer price on bed basis ? Q2. Why for with-profit business present value of profit is calculated as PV of shareholder transfer under EV calculation. why not full business profit is considered ?
Q1: bid price on offer basis = to pay out claims (p/hs cashing in their units) if the company is pricing under an offer basis (even if there is a net inflow of cash, there will still be some claims that need to be paid out) offer price on bid basis = to use to purchase units with premiums coming in, if the company is pricing under a bid basis (even if there is a net outflow of cash, some p/hs are likely to still be paying premiums in) Q2: EV = value of shareholders' interest in the company. Thus it includes PV future shareholder profits = PV future shareholder transfers. [Wouldn't count the full business profit as a lot of this would go to the policyholders, not shareholders.]