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This thread should help: https://www.acted.co.uk/forums/index.php?threads/2022-sep-q2-ii.19943/#post-77689

Yes - given the context of the rest of the question, this is the appropriate interpretation.

Question states that lapses on UL business have been the same as expected, not lower.

This point is explained in our ASET for that paper, so would recommend that you review the explanation there.

This is a horribly mismatched asset-liability position - so little surprise that the capital position is messy! Using your figures, we seem to...

Yes, for UL business the unit reserve component of the BEL will reduce under an equity market fall. However, {assets - BEL} will still likely be...

My point was that a positive BEL would be normal for UL business. The unit reserve component of the BEL will always be positive, but that...

Look again at the question wording. Sept 2020 Q3(i) (which I presume you are referring to) is asking about the impacts of the scenario event on...

It sounds like you do not have the latest version of the SA2 course notes, which might not be helping. There is no longer an Appendix to the tax...

I think you are confusing different concepts. The post above is about the rules that apply when determining the SCR using a standard formula...

No - if the bonds are cashflow matched to the liability cashflows, that means that the company will hold them to maturity (it has to do this,...

This sounds a little confused and you seem to have the driver the wrong way round. Reduction in liquidity of corporate bonds (or greater...

There will be lots of examples of these but a few thoughts to get things going: a group might decide to allocate capital around its business...

Simplistically, credit spread on corporate bond = default risk premium + illiquidity premium The phrase you have quoted refers to the risk of the...

(i) The guarantee in question is a guaranteed annuity option (= option to convert the cash benefit into an annuity at a minimum guaranteed annuity...

We break the solutions down into more detailed individual half mark (sometimes full mark) points in our ASET product, so that would be a better...

The question is asking about a per policy renewal expense loading (for pricing) of £X per annum. Reinsurance costs are not 'renewal expenses' as...

The question is basically asking: under what circumstances would a South African life insurance company pay higher tax? So the point here is...

The estate belongs to the with-profits policyholders (with an appropriate share going to the shareholders), not the without-profits policyholders....

This is all explained through that chapter. It's a proprietary company so: Non-BLAGAB: taxed on profit, at the corporation tax rate. BLAGAB:...

Yes, that sounds right

This phrase tends to be used when talking about the discount rate used to discount future profits, such as for traditional basis EV calculations...

Yes: the risk margin is discounted using the risk-free yield curve (this is explained in Chapter 10, Section 2.2, third point under 'The cost of...

Apologies but I don't understand the question - please could you ask it again (rephrased) to make clearer exactly what you are asking

We are told in the question that this company is setting its WP BEL to be asset share + cost of guarantees only, so is not making any allowance...

Asset shares would of course be calculated for conventional WP products too, to set terminal bonuses. But using shadow funds only really works...

Policyholder sees the guaranteed benefits they have built up to date. Company also sees the shadow fund, which represents the asset share and...

'Equity market risk' refers to the equity market risk stress that is worst for the company (because that is what is going to be used to determine...

No - it isn't saying that an increase in equity risk is due to the equity market fall. (As I have stated above, the opposite is likely to be the...

Don't worry, you aren't disadvantaged by not being UK based - this is a difficult area for most! That's why we have included lots of numerical...

Suggest reading through this recent post which covers this idea: https://www.acted.co.uk/forums/index.php?threads/2022-sep-q2-ii.19943/#post-77689

Again, you are confusing two distinct things - and I definitely didn't say that equity markets falling will increase the level of equity risk for...

The non-unit reserve is the amount deemed to be sufficient to cover the excess of future expected cashflows out of the non-unit fund (which would...

Own funds = assets minus 'liabilities' SCR is the change in own funds under the overall 99.5% one-year VaR stress If the company only holds an...

I think you mean Q1 here? The NUR would also need to be sufficient to cover future tax expected to be due on the business (think of it as a type...

Be careful: the SCR is not set so that there is only a 0.5% chance that basic own funds will not cover the SCR. The SCR is about holding enough...

You are getting two different things confused here. If equity markets fall, then looking forwards the company now has less exposure to equity...

Hi Sarah If you are making points that are very similar to those included in the Examiners' Report, then these would likely be given credit as an...

'Balance of payments' = payments into country minus payments out of country Fewer exports -> fewer payments coming into country More imports ->...

Assets will go down by the reinsurance premium P. But assets will increase by the expected reinsurance recoveries (net of best estimate of default...

If working from expected to actual, we need to leave everything we have already changed to actual as actual for each step - and then change one...

I think you mean question 18.5? (I have also changed the heading of this thread to refer to Chapter 18, per the current notes, to avoid confusion...

This is saying that there is no point attempting to recover the cost of guarantees biting from WP policies becoming claims, because the insurer...

See Chapter 7 (Taxation (2)), near the top of page 10, which explains that in the UK BLAGAB acquisition expenses are spread over a period of seven...

Whether you include headings to split up your answer points is entirely down to you. Just a slight word of caution: remember that there are...

As an example, in a 90:10 fund under the 'additions to benefits' method, profit transfers to the shareholders are made in the form of 1/9 of cost...

I think you are getting confused about what is meant by the 'Shareholder fund': it doesn't contain any policies (these are written into the...

The existing NP business is written in a shareholder-owned fund. If it were transferred into the with-profits fund, the with-profits...

In the scenario in the question, the tax rule is only changing for new business going forwards, not for existing business, so there would be no...

As stated in the course (Chapter 1 near the bottom of page 24), the death benefit would normally be guaranteed to be not less than the single premium.

If interest rates increased by 1% then the yield on corporate bonds would also be expected to increase by 1% (ignoring any impact on the spread) -...

Apologies but I am struggling to understand these points. By 'greater exposure to corporate bonds' are you referring to this particular company...

Have another look at exactly what the question is asking: 'Discuss why the company may hold more capital than that indicated by its assessment of...

These points are about the company taking actions to resolve the issue it now has with its savings product, which will now be taxed on an XSI...

If term assurance business makes a loss and 'profit' is now being taxed, there will be no tax payable on the term assurance portfolio. If the...

First, it's important to recognise that the change proposed in the question would only apply to new business. (That is stated in the question...

Hi - many thanks for spotting this typo. The point should read '... and currently has a lower yield than the property'.

No - there are not two stress events being determined for the SCR calculation in this example. As I said before, you are confusing two distinct...

Because we are only considering the mortality stress in isolation. The fact that there are fewer policies in-force and interest rates have fallen...

Your questions here suggest that you are confused between two distinct things: an event happening to a company (after which it has to recalculate...

Yes but this is not covered explicitly in the SA2 Core Reading

Step back from it: the calculations in part (ii) show that death claims during the year were 100,000 (when actual = expected). If mortality were...

If equity values have just fallen, the company now has a lower equity exposure in absolute terms. If equity markets fall again (which is one of...

If a company is using a marginal costing basis for a particular product, it is not gaining any contribution to overheads from that product and is...

Have a look at the glossary definition of 'Marginal pricing', which is what is relevant here. If a marginal costing basis is used, this means...

This is along the right lines but not quite correct. Under the standalone basis, the cost of capital allowed for in the pricing would be based on...

In Q2(ii) we can see that the investment income calculation has an amount deducted from it in relation to death claims, and there's no need to do...

These points would indeed impact profitability, but feel like they might be rather too second-order to gain credit in the exam. For example,...

To put this into context, it immediately follows the explanation of why the overall EV would (under certain caveats that simplify the position)...

The WP fund (ie bonus rates that would use up all the assets in that fund, including the estate)

We project forwards the pattern of release of the required capital for the in-force portfolio, allowing the capital to earn investment return at...

Apologies I don't understand the first question here - could you pls elaborate? If we went from actual to expected instead, start with all as...

Because the first thing we do is to separate out the assets backing the liabilities at the start of the year (4,090,790) and the surplus assets...

Because the liability valuation reflects what the company expects to happen in the future, ie what it expects the future expense levels to be, not...

Again, the figures are different in the current version of the CMP. The rate used to discount the liabilities is as described in the earlier...

Would strongly recommend updating your notes. This example has been changed and it is now in Chapter 15 (so I have updated the title of this...

FWIW it seems to be rather risky to be taking the exam using materials that are now five years out-of-date. [I have changed the thread title to...

Don't worry, you don't have to work in the UK market to understand this. The two questions are asking quite distinct things, hence the apparent...

Hi - actually I think your misunderstanding here relates to the context in which the term is being used. The 'risk discount rate' being referred...

The spread on a bond is the excess of the yield on that bond over the yield on an equivalent risk-free bond, with a government bond often being...

Management information

This is rather a detailed question to deal with on the forum, but to pick up on a few things: Not sure what you mean by 'if economic balance...

The main content of the solution is all about how the company is going to deal with the customers who have been paid too little on claim, as these...

Fundamentally, yes (unless the arrangement is securitising profits that are not recognised on the Solvency II balance sheet, such as those arising...

You seem to be very confused about the purpose and calculation of the risk margin, so would suggest reviewing the course content on this (Chapter...

I'm not convinced that offering joint life would increase longevity risk as such. Is there even potentially a lower standard deviation of...

Yes. Lower RB -> slower build-up of guarantees -> lower cost of guarantees -> lower liabilities (if these are defined to include a cost of...

Based on the title of this thread, I presume you are talking about writing new business into a with-profits fund? Increasing premiums on...

Derivatives -> lower risk -> lower required capital [If 'available capital' is defined as assets - liabilities, then agree that this isn't...

Yes, just taking x% is the much simpler and more pragmatic approach. It will give roughly the same answer as the more accurate projection...

The 'haircut' that you refer to reflects the opportunity (or frictional) cost of capital being locked into the company. If this amount were...

No - can also be used if the fund is open. Remember that EV is the value of the shareholders' interest in the business ignoring future new business.

As noted in the details of the solution, assets could be allocated to the WP business equal to just the asset shares or to technical provisions...

Considering the risk margin to be a potential proxy for the 'cost of holding required capital' is only used to demonstrate that it might not be...

For the benefit of those without the tutorial handouts, this question is based on part of April 2006 Question 1, updated for a Solvency II...

Yes - sounds like you have clicked it now! In terms of your final question, that's unlikely. The accumulated charges would fall to the estate...

The shadow fund approach is an example of a retrospective accumulation approach. The distinction lies within the mechanism being used: the...

Exactly how the smoothing account operates would be down to the insurer. I'm not sure what you mean by '+ estate contribution' - do you mean as...

The course now includes very little detail on US GAAP, so this isn't something that you would need to know about for the exam. Based on my own...

I don't think we can say that it would apply to single premium bonds, as obviously the actual rules would depend on jurisdiction (and the Core...