Chapter 7

[kimiko]

Hi Mark, in X assignment X1 question 1, the solution says this about smoothing for revalorisation: " The revalorisation method uses a defined formula to distribute profits, with no discretion, but smoothing can occur relative to market returns by distributing book value profits." Can you kindly explain this to me? It seems slightly contradictory with this sentence in page 12 of the CMP: "The question does not arise, since the company must declare bonuses in accordance with the surplus accrued."

 

[Mark Willder]

Hi Mark, in X assignment X1 question 1, the solution says this about smoothing for revalorisation: " The revalorisation method uses a defined formula to distribute profits, with no discretion, but smoothing can occur relative to market returns by distributing book value profits." Can you kindly explain this to me? It seems slightly contradictory with this sentence in page 12 of the CMP: "The question does not arise, since the company must declare bonuses in accordance with the surplus accrued."

Hi Kimiko

We are saying that the revalorisation method can give smooth results (eg because it uses book values) without the need for the actuary to apply an explicit smoothing mechanism.

Best wishes

Mark