Practice Question 21.8

Discussion in 'SP7' started by Laura, Feb 10, 2024.

  1. Laura

    Laura Very Active Member

    Hi everyone,

    The question asks how regulation requiring undiscounted reserves to be held would affect the modelling of insurance risk for the purposes of assessing capital requirements.

    While I understand that there will be there should be no impact on insurance risk capital, I'm not sure why this is not the case if profits are not treated separately?

    Thanks in advance for your help!
     
  2. Ian Senator

    Ian Senator ActEd Tutor Staff Member

    If undiscounted reserves are used, reserves will be bigger which will make profits look smaller (bringing losses forward). So if profit recognition is considered when modelling insurance risk, this will have an affect on capital requirements. I think it's the double negative ('not the case if profits are not treated separately') that makes it slightly confusing to follow.
     
    Last edited: Feb 15, 2024

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