Hello,
Correlating few concepts of EV between SP2 and SA2 here.
Per SP2 Core Reading,
For without-profits business, the present value of shareholder transfers is effectively the release of any margins within the supervisory reserves relative to the assumptions used within the embedded value calculation.
Hence,
PVFP (ie the present value of future shareholder profits)
= PV {Premiums + investment return - claims - expenses + release of reserves} (equation1)
= PV {Release of prudential margins in reserves} (equation2)
However, I did not clearly understand how would equation1= equation2 assuming that the supervisory reporting is performed on a prudential basis.
Further in SA2, it is mentioned that for jurisdictions which require liabilities stated on best estimate basis (perhaps Solvency II regime), there will be no release of prudential margins. Agree here.
However, for such jurisdictions, for PVIF, we will still consider -
a) profits beyond Solvency II contract boundaries
b) difference between BE investment return assumed in EV projection basis and discount rate used in BEL (including MA/VA in BEL calculation)
c) future shareholder transfers for with profits business
d) release of risk margin less cost of holding it
My question is
a) Does this mean that EV calculation is also governed by Solvency II basis? I thought Solvency II was only for Solvency II balance sheet and EV is not calculated for this balance sheet. Why will we still consider profits beyond contract boundaries if EV is Solvency II basis?
b) What is the rationale behind including difference between BE return on EV basis and BEL discount rate?
c) why will PVIF include release of risk margin? Isn't the risk margin included in technical provisions only under Solvency II?
Please help. Thank you in advance!
Correlating few concepts of EV between SP2 and SA2 here.
Per SP2 Core Reading,
For without-profits business, the present value of shareholder transfers is effectively the release of any margins within the supervisory reserves relative to the assumptions used within the embedded value calculation.
Hence,
PVFP (ie the present value of future shareholder profits)
= PV {Premiums + investment return - claims - expenses + release of reserves} (equation1)
= PV {Release of prudential margins in reserves} (equation2)
However, I did not clearly understand how would equation1= equation2 assuming that the supervisory reporting is performed on a prudential basis.
Further in SA2, it is mentioned that for jurisdictions which require liabilities stated on best estimate basis (perhaps Solvency II regime), there will be no release of prudential margins. Agree here.
However, for such jurisdictions, for PVIF, we will still consider -
a) profits beyond Solvency II contract boundaries
b) difference between BE investment return assumed in EV projection basis and discount rate used in BEL (including MA/VA in BEL calculation)
c) future shareholder transfers for with profits business
d) release of risk margin less cost of holding it
My question is
a) Does this mean that EV calculation is also governed by Solvency II basis? I thought Solvency II was only for Solvency II balance sheet and EV is not calculated for this balance sheet. Why will we still consider profits beyond contract boundaries if EV is Solvency II basis?
b) What is the rationale behind including difference between BE return on EV basis and BEL discount rate?
c) why will PVIF include release of risk margin? Isn't the risk margin included in technical provisions only under Solvency II?
Please help. Thank you in advance!