Hi, Q1 iv) Excess of assets over BEL is higher than expected at the end of the year. For all comments related to increase in profit in the solution, is it based on logic below? If profit increases, capital will increase. Assets= liabilities + capital Hence, liabilities will reduce due to increase in profit. This in turn will increase surplus per definition i.e asses - BEL.
It seems a bit of a circular argument to me. Liabilities don't necessarily have to reduce for there to be profit. E.g. profit is included in the pricing of profitable business i.e. income exceeds outgo. Therefore if more NB is written, both assets and liabilities increase but assets increase by more than the liabilities. If past reinsured business is recaptured, the profit previously passed on to the reinsurer stays with the insurer. Not sure if this helps.
