L
Lost1
Member
Hi,
I think I'm getting a little confused about this, hope someone can help.
Under Peak 2, the realistic value of liabilities is made up of the With-Profits Benfit Reserve + Future Policy Related Liabilities (+ Current Liabilities)
The notes say that the cost of options/guarantees/smoothing needs to be allowed for in the Future Policy-Related Liabilities to the extent that it is not already allowed for in the With-Profits Benefit Reserve.
a) If the full cost of options/guarantees/smoothing is deducted from the asset share, then there would be no component for that in the future policy-related liabilities. So the reserve would be the asset share less the cost of options/guarantees/smoothing. That would make sense if the policyholder is charged for this cost and is then paid less on maturity,etc.
b) Now if no cost of options/guarantees/smoothing is not deducted from the asset share, it would have to be allowed for in the future policy-related liabilities. In that case the reserve would be the asset share plus the cost of options/guarantees/smoothing. That makes sense from the point of view that the reserve would need to be higher due to the fact that there is such a future cost.
Surely the resulting reserve should be the same, no matter which component the cost is allowed for in? a) seems more sensible from a payouts perspective but not realistic in terms of reserving (b).
What am I missing?
I think I'm getting a little confused about this, hope someone can help.
Under Peak 2, the realistic value of liabilities is made up of the With-Profits Benfit Reserve + Future Policy Related Liabilities (+ Current Liabilities)
The notes say that the cost of options/guarantees/smoothing needs to be allowed for in the Future Policy-Related Liabilities to the extent that it is not already allowed for in the With-Profits Benefit Reserve.
a) If the full cost of options/guarantees/smoothing is deducted from the asset share, then there would be no component for that in the future policy-related liabilities. So the reserve would be the asset share less the cost of options/guarantees/smoothing. That would make sense if the policyholder is charged for this cost and is then paid less on maturity,etc.
b) Now if no cost of options/guarantees/smoothing is not deducted from the asset share, it would have to be allowed for in the future policy-related liabilities. In that case the reserve would be the asset share plus the cost of options/guarantees/smoothing. That makes sense from the point of view that the reserve would need to be higher due to the fact that there is such a future cost.
Surely the resulting reserve should be the same, no matter which component the cost is allowed for in? a) seems more sensible from a payouts perspective but not realistic in terms of reserving (b).
What am I missing?