Hi General questions: 1) When calculating an EV, can you take account of future NB levels when calculating the contribution to overheads from the existing business? i.e. in the per policy expense assumptions? 2) In the solution for question 3 paper 1 of April 2001, it mentions that some of the free estate will be needed to make up the difference between the realistic and statutory value of the without profits liabilities. . .what about for the with profits liabilities ? Thanks Em
Yes, you can allow for the future new business when calculating the per policy expense. If you didn't allow for new business then the per policy expense assumption would increase dramatically at later durations as you'd be spreading the same overheads over a declining book of business (but this is not realistic for an open insurer). Best wishes Mark
The estate is the difference between the assets and liabilities on a realistic basis. For without-profits policies we need to hold a prudent reserve that is bigger than the realistic reserve, so the estate must cover the difference. For with-profits business we would usually regard the asset share as a realistic estimate of the reserve. We also use asset share in the Peak 2 reserves. So we don't have much difference between realistic and prudent bases here (although we should still cover other regulatory requirements such as the future policy related liabilities FPRL and capital requirements). We're considering distributing the estate at maturity as terminal bonus on top of the asset share. At maturity the FPRL and capital are no longer required for the maturing policy, but we must ensure we still cover the prudent reserves of any without-profits business yet to expire. Best wishes Mark
