CMP Chapter 19 - 20

Discussion in 'SP2' started by shinmo, Mar 15, 2015.

  1. shinmo

    shinmo Member

    Chapter 19 Page 5
    “There would be no elimination of negative values” in Best Estimate Reserves.
    Does this mean negative reserves are allowed?

    Chapter 19 Page 5
    “For non-linked business, a gross premium formula reserving method could be used and… permitting negative values, described later in Chapter 20”
    Does this mean that the negative non-unit reserves discussed for unit-linked products in Chapter 20 also apply to other non-linked business, eg. Conventional without-profits?

    Chapter 19 Page 15
    What does this mean: “Embedded value basis is more best estimate than pricing basis”

    What does this mean: “Any differences will immediately lead to embedded value movements on writing new business different to those implied in pricing basis”

    Chapter 20 Page 2
    “Separate method identifies and reserves for future negative cashflows without necessarily taking credit for all positive cashflows.” What is this separate method?

    Chapter 20 Page 7
    “After taking account of the future non-unit reserves, there are no future negative cashflows for the policy, i.e. no future valuation strain”
    What does the above mean?

    Thanks in advance. Any help is much appreciated 
     
    Last edited by a moderator: Mar 15, 2015
    shinmo, Mar 15, 2015
    #1
  2. Darrell Chainey

    Darrell Chainey ActEd Tutor Staff Member

    1. yes - they're talking mainly about internal management accounts and so anything is "allowed"

    2. Kind of: it means you could calculate negative reserves for, say, without-profit business. The phrase "non-unit reserves" is used for the non-unit element of UL business. But the calculation should be a lot easier as the cashflows are simpler. So a simple GPV might be possible.

    3a. more realistic, ie less prudent
    3b. When you price a contract you will be expecting a certain amount of profit. You would expect this to increase the EV when the business is written. If you are less prudent when you calculate the EV, then you will recognise even more profit.

    4. It's just the standard method used to calculate non-unit reserves as discussed in Section 2.2.

    5. It's effectively saying that the reserve we set up now should be sufficient to pay future liabilities, and we won't have to find extra money later on from our net assets.
     
    Darrell Chainey, Mar 17, 2015
    #2

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