Chapter 15 - Analysis of surplus

Hi

I would like to check my understanding of the impact of NB on surplus arising.

In a simplified approach to surplus Assets - Liabilities (BEL only) (as described in the notes).
Assets - increase by assets actually accrued during the period less liability cashflows expected to be paid out on new policies during the period
--> it might be that if NB is added before economic variances are applied to IF business then we would use the expected assets to be accrued during the period
--> liability cashflows expected to be paid out are included rather than actuals because the non-economic variances are applied after the NB is added, however would also be possible for the actual liability cashflows to be used here, IF the NB was added after non-economic variances had been applied to IF business.
Liabilities - increase by the BEL (as at valn date) for these new IF policies at end of period

However if we add in SCR and RM then:
Assets - as above plus SCR and RM expected to be released over the intravaluation period
--> not sure if this would be SCR and RM actually released or expected to be released.
--> I think it might be what is actually released in terms of asset changes but what is expected to be released wrt liabilities. Actual changes wrt liabilities would be captured in the non-economic variance item.
Liabilities - as above plus increase in the RM and SCR (as at valn date) for IF policies at end of period.

Thank you,

Rachael

PS lots of detail I know but just trying to check my understanding of the possible approach in the notes so that I can understand the impact of changing the order. Thank you.

 

Realised this thread should link to Chapter 15 - sorry.

I have a few more questions.

1) On page 9 of chapter 15 it states that the 4th step in the possible approach is to roll forward to the new valuation date using actual investment return data for the inter-valuation period. On page 6 it states that the economic variance through investment return can be split into 5 different items (bullet points below). I wonder how we would isolate each of these in the roll forward, that is what change would we have to make in the model:

• investment return expected vs discount rate used in liability valuation (expected assets)
• investment return actual vs investment return expected (expected assets)
• change in asset mix
  • I think the change needed would be to update the actual asset mix and providing assumptions (returns/correlations) for these new assets are included within the model then this will be the update required to isolate
• spread movement vs MA/VA assumed in liability valuation
• mismatch surplus

2) If we are defining surplus such that liabilities include the RM then there are 3 changes to set out on page 14 that could cause a change in the RM requirements from the valuation date onwards. Two of these not in the Core reading but in the acted notes are:

• changes in the size of the SCR component --> is it correct that this could be anything that impacts the size of non-hedgeable risks or calculation of the SCR methodology
• changes in the run off of SCR --> this could be anything that changes to the pattern of the non-hedgeable risk profile or the calculation of the SCR methodology

Thank you,

Rachael

 

I definitely was overcomplicating.

Thank you, that makes much more sense now.

 

My confusion started as one of the flash cards says may be separately identified. But as you said, they are more likely reasons for the change rather than all being separately identifiable and the key is they may overlap!

Thank you