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Ch26 Q26.1

S

SABeauty

Member
This solution talks about falls in equities and makes the following statement :

Realistic peak is more onerous and the valuation is based on asset share. So if there is a fall in equity values, the with profits benefit reserve will fall.

Does this only happen if there is also a fall in yeild if we are using an asset share methodology?
 
If we're using asset share, this is a retrospective method and so the change in asset values is the key: if equity asset values fall, asset shares will too.

How are you bringing in yields to your thought process?
 
So the investment return assumption in the asset share calculation will take into account this drop in equity values?

Was getting confused on how capital gains/losses are reflected in asset share - but I assume it is through the investment return assumption.
 
The investment return used in the AS calculation should be the actual return (including the recent drop in values) and not an assumption, so yes, you're right.
 
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