apr 2018 q2 viii vs 18.1. ii

Discussion in 'SA2' started by dimitris13, Sep 21, 2019.

  1. dimitris13

    dimitris13 Ton up Member

    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
     
  2. Em Francis

    Em Francis ActEd Tutor Staff Member

    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 likes this.
  3. dimitris13

    dimitris13 Ton up Member

    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?
     
  4. Em Francis

    Em Francis ActEd Tutor Staff Member

    Released as profit.

    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.
    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
     

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