Hi All, Can somebody help me in explaining different market related methods, possibly with the help of some numerical example? Thanks in advance! Regards, Rajat
ABDR - allow for expected return on actual assets held MTM - rate on best matching assets, where in the case the best matching assets is risk free, so bonds BY+RP - allow for extra return on other assets - but only to the extent they could offer reasonable backing for the liabilities - eg still bonds for pensioners, but possibly equities for non-pensioners? Example return on bonds = 5% return on equities = 7% actual assets = 50% bonds, 50% equities liability split = 60% pensioners, 40% equities Then I'd use MTM = 5% ABDR = 50%* 5% + 50% * 7% = 6% BY+RP = 60% * 5% + 40% * 7% = 5.8% (or = 5% + 40% * (7% - 5%) = 5.8%) The Examiners have given credit for 'sensible variations' in the past (eg September 2011)
