Hello,
I need help in understanding VIF as calculated for EV.
I have seen multiple definitions in SP2 and SA2. Summarizing my understanding below-
1. VIF if the present value of future profits from existing business of insurer
2. It is equal to the release of margins in reserve (if prudent reserve is held)
3. It is also a part of free surplus under Solvency II regime. (How?)
4. Under Solvency II regime, although we calculate BEL, VIF will include following
Apart from the questions above in brackets, I would like to know how can we identify VIF in Solvency II Balance sheet? There is a diagram in EV chapter which shows PVIF is less than liabilities but it is not clear to me. We also claim that PVIF is the release of risk margin. Why would VIF not be simply equal to the risk margin in this case? Please help urgently.
Thank you
I need help in understanding VIF as calculated for EV.
I have seen multiple definitions in SP2 and SA2. Summarizing my understanding below-
1. VIF if the present value of future profits from existing business of insurer
2. It is equal to the release of margins in reserve (if prudent reserve is held)
3. It is also a part of free surplus under Solvency II regime. (How?)
4. Under Solvency II regime, although we calculate BEL, VIF will include following
- profits arising beyond contract boundaries (release of margins in reserve beyond contract boundary?)
- risk margin release
- difference between risk free return on BEL and projected investment return for calculating EV
- PV of future shareholder transfers , if not included in own funds (does this mean only when own funds does not subtract shareholder transfers although assets should be lower after shareholder transfer)
Apart from the questions above in brackets, I would like to know how can we identify VIF in Solvency II Balance sheet? There is a diagram in EV chapter which shows PVIF is less than liabilities but it is not clear to me. We also claim that PVIF is the release of risk margin. Why would VIF not be simply equal to the risk margin in this case? Please help urgently.
Thank you