Ch30 page 30 I am bit confused , please help. Que. Describe the impact on embedded value of writing new business. In the solution it has mentioned that embedded value will increase if the business is profitable on the EV basis. Considering the two components of EV separately the pvfp will increase whilst the free assets will normally decrease" I understand the part that free assets will normally decrease because free assets will be used in supporting the new business strain but I'm not able to understand why pvfp will increase because for the calculation of embedded value we only take the inforce business so how come the effect of new business will increase the pvfp. I do not understand in this question how come PVFP will increase.
Hi Mahima We are thinking of the impact of writing a new policy today. So these policies are now in force. Best wishes Mark
Hey Mark, Please confirm the following. Are you saying that we are analysing the impact of writing new business today on future embedded value when this new business policy will be in force ?? My understanding of in force business is something that new business policy moves to inforce business after 12 months of inception or so because the persistency rates of new business is low. But with the above solution of yours, I am inferring that your definition of in force is different. Could you please confirm what is your definition of in force. So is new business policy considered as in force policy just after inception ??
Hi Mahima In force business is any policy that has been sold and has not expired yet. So business becomes in force on the very first day. We don't use the definition that we wait 12 months. Best wishes Mark
