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Ch 37: Reasons for performing AoS

B

Bhoomi Sindhi

Made first post
On page 6, it is mentioned that AoS is performed to show the financial effect of divergences between the valuation assumptions and the actual experience. In my understanding, AoS is basically performing an actual vs expected exercise. Why is it mentioned that it shows divergences between actual and valuation assumptions (and not best estimate assumptions since I'd equate expected with BE assumptions)?
 
Hi Bhoomi

An analysis of surplus is carried out to explain why surplus or deficit calculated at two dates - as part of a valuation - has changed. Surplus or deficit will build up in this scenario in respect of experience if experience is better or worse (respectively) than the assumptions that are made for the valuation, which may not necessarily be best estimate assumptions.

'Expected' experience for an analysis (of the reasons for change in the valuation) of surplus is therefore what is assumed in the valuation assumptions. As long as experience is in line with these assumptions, there will be no additional surplus or deficit generated from experience differences.

I hope this helps.
 
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