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Apr 2025 Q2 iv)

A

Actuary@22

Ton up Member
Hi in Q2 iv)

When the question is asking about the impact of the stresses on assets so I was thinking using own funds definition as for solvency coverage own funds is the numerator.
So I am getting confused in the impact on assets/own funds,they are two separate things or the same?And pls clarify on what is the correct way to think for this question?
Similarly impact on liabilities and impact of SCR are two separate things or same?

For eg in case of longevity increase I would expect BEL to increase and hence own funds to fall leading to a fall in SCR coverage. But impact on own funds is no where considered in the examiner's report.
 
Hi

'So I am getting confused in the impact on assets/own funds,they are two separate things or the same?'
They are separate things. Assets is simply assets. Own funds is (broadly) Assets - Technical Provisions.

Similarly impact on liabilities and impact of SCR are two separate things or same?
Two separate things.

This question explicitly asks for impact on assets, liabilities and solvency coverage. I think the best way to think about this question is to cover each of these 3 in turn. Solvency coverage = own funds / SCR. To cover the solvency coverage impact, we therefore need to think about the SCR impact.

For the longevity increase, I think your understanding seems fine. The examiners just cover in turn assets (no impact), liabilities (increase as you say), SCR (increases) and so overall solvency coverage (combining all of these) reduces (as you say).
 
Understood thanks a lot.
Also why does the examiners report not mention the impact on own funds for impact on solvency coverage? And answers only basis the SCR.
How do we decide in the exam if its okay to skip own funds or we would lose marks?
 
Agreed, they don't explicitly mention the own funds impact, but I wouldn't say their answers are only based on SCR. Having done assets and liabilities, they then cover the SCR impact first (need to do this as its the missing piece of the solvency coverage), and then the 'solvency coverage' which is bringing together the assets, liabilities and SCR pieces.

If the question had explicitly asked for own funds impact, would need to give it separately. Here, as it's more an intermediate step on the way to the requested solvency coverage, no harm in explicitly stating the impact, but not essential.
 
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