On page 7 of the notes it states that smoothing profits/losses can arise because of smoothing.
We expect smoothing profits/losses to be neutral over time when applied to all benefits paid.
Is it also true that we expect the cost of smoothing to be neutral over time for smoothing of surrender values?
I don't think it is true, because they are only part of the aggregate of all benefits paid. So we may see profits/losses on the surrender values and losses/profits on the maturity/death claim values.
Or when we are talking about smoothing of surrender values, are we talking about smoothing over the term of the policy, so early surrenders lead to a higher surrender value than can be afforded, and later surrenders lead to a lower surrender value than can be afforded, due to the need to smooth the SV to the maturity value.
Additionally, there are two approaches to addition of surrender p/l cashflow and addition via inv return. In the addition via inv return it says
this way, profits can be allocated over a wider range of policies and product types.
This appears to be suggesting that the cashflow addition method is not suitable for this - is this the case or am I misinterpreting?
Thank you
Last edited: Feb 13, 2024