• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

FFA and Estate on a balance sheet

J

Jimmy white

Member
Can somebody please explain the difference between the fund for future appropriations and the inherited estate, and how they fit in (if at all) with the assets and liabilities in a Peak 2 valuation?

From the descriptions of both the FFA and the estate, I can't seem to distinguish between how the two are valued, they seem like the same thing to me!

Is the FFA simply a liability to distribute the remaining free assets between policyholders and shareholders within a WP fund, and hence offsets the estate being an asset on the other side of the balance sheet? Do they always equal each other?

Confused, please help. Thanks!
 
The different calculations that are described in the course are designed to help us understand different issues. For example, "How can we avoid insolvency? (i.e. prudent basis)", "How much profit did we make this year, and what should appear in the accounts? (i.e. realistic)", "What is the value of a book of business if we decide to sell it? ... or buy it?".

Sometimes, the terms we use are a bit loose, and at other times have very specific meanings. I think 'Estate' is on the loose side, but 'FFA' has a specific meaning.

So, Estate usually means the the excess of the realistic value of the assets over the realistic value of the liabilities. How you measure assets and liabilities will depend on the purpose of the exercise.

FFA (Fund for Future Appropriations) has a very specific meaning, because it is used in a Profit Reporting context, on the Balance Sheet.
It sits on the Liabilities side of the Balance Sheet, which is divided into three parts, (i) Technical Provisions (PH), (ii) Shareholder Funds (SH), and (iii) FFA: Money that has not yet been allocated to PH or SH.

FFA is covered in detail in Chapter 21, and its calculation would be based on MSB (Modified Statutory Basis), which as the name suggests, is the FSA Pillar 1 Peak 2 Valuation Basis, with some modifications!

Hope this helps.
 
Back
Top