apr 2018 q2 viii vs 18.1. ii

[dimitris13]

Hi there ,

18.1 mentions that pvif includes the release or rm and scr while being in s2.
the apr2018 (and the course notes) mention that pvif=0 and we should find a method of release. is it a method the above from 18.1?
thanks

 

[Em Francis]

Hi there ,

18.1 mentions that pvif includes the release or rm and scr while being in s2.
the apr2018 (and the course notes) mention that pvif=0 and we should find a method of release. is it a method the above from 18.1?
thanks

Hi Dimitris
I am not 100% sure of what you are trying to ask here.
Are you asking why the PVIF includes the release of the RM and the SCR?
If so, this is because of the definition of the EV given in the question:
(assets - BEL +RM +SCR) + PVIF
and so any assets covering the (BEL+RM+SCR) not required at the end of the projection period would be released as PVIF.
If the question had defined EV as:
(assets - BEL) + required capital + PVIF
then there is an argument for the PVIF to be zero as there shouldn't be excess assets (referred to above) as the BEL is best estimate.
Does this help?
Thanks
Em

 

[dimitris13]

would be released as PVIF

when you say released as PVIF what do we mean ? we increase the PVIF by something at time t?
one more thing with regards to this;
when we say release of the RM how can we show this in terms of equations ?

ps. is there any "exercise" with formulas where i can see the entire flow of an mcev calc?

 

[Em Francis]

when you say released as PVIF what do we mean ? we increase the PVIF by something at time t?

Released as profit.

one more thing with regards to this;
when we say release of the RM how can we show this in terms of equations ?

This just means the assets are no longer required to back the risk margin and so are released, simply:

RM(t+1)- RM(t)
Where t+1 is the end of the projection period.

ps. is there any "exercise" with formulas where i can see the entire flow of an mcev calc?

Just follow what Lindsay has illustrated in:

https://www.acted.co.uk/forums/index.php?threads/ev-and-pvif.15937/


Profit arising in year t = -NCF(t).(1+i) + (1+i)res(t) – res(t+1)
Where NCF can be taken as net outward cashflows.
And res(t) is the reserve at time t.

Hope this helps.
Thanks
Em