Hi I just have a couple of quick questions on this paper: For iii)/Q1, solution on page 5 says, 'It may be that the illustrations were given using generic retrospective method in the knowledge that in practice any SV would exceed this, and so this may not be such an issue. ' The question has already mentioned the SV was calculated using prospective method, so does this answer imply that the company was doing something different from what's been illustrated? Is this possible? If it is, then I think "it is an issue" rather than "may not be an issue"? On the same page as above, it mentioned EAS capacity, when it says, 'transfer this capacity to producing individual EAS calc for SV.." does it mean transferring aggregate EAS (probably by product line I guess?) to individual ones? Thank you so much as always. Hopefully they are the last questions.
To make sense of the paragraph you quote you need to read it together with the previous paragraph as follows: "However, the problem may be that past practice may make it difficult to change the methodology, and this will depend heavily on what information such as point of sale illustrations have been given to the policyholder, and on what the PPFM says. It may be that the illustrations were given using a generic retrospective method in the knowledge that in practice any SV would exceed this, and so this may not be such an issue." So the issue here is whether PRE allows us to change from a prospective calculation to a retrospective one. The solution suggests that illustrations may have been given using retrospective surrender values, so we can easily change to using asset shares without upsetting PRE on this count. In the past we have been using prospective calculations for the actual surrender values. This is fine if the prospective method yields higher surrender values than have been illustrated. We can always pay more than policyholders reasonable expectations if we wish (and can afford it). The solution mentions EAS capability. It is refering to the availability of computer systems and trained staff to perform the calculations. We know that staff and systems exist to calculate asset shares for groups of policies as this is how bonuses are set. The solution questions whether these systems can easily be adapted to calculating asset share for each individual policy (because we need to be able to calculate asset share only for the policy that is surrendering). Best wishes Mark
