How does the Embedded Value change for with-profit contracts under the following situations: (i) strengthen in the reserving basis (ii) strengthen in the experience basis
Quote ER for (i): For with profits business, the company should be projecting the expected bonuses based on asset shares. Any release of prudence in the reserves which are more than required to cover the bonuses driven by asset shares would be subject to management discretion in terms of how or when it is distributed.In effect this is no different to the treatment of the excess of the assets less the liabilities, and is unlikely to make a material difference to the EV. For (ii), worse experience would lead to lower asset shares, lower bonuses and lower EV.
