S
Satya
Member
Hello,
In this question we are given the year end 2013 basis, the actual half year 2014 experience and asked to discuss why the company has set the year end 2014 basis as it has.
This company is using Solvency I rules. We can tell this because the PVIF is strongly positive in the table for question 1.(ii).
I had a go at this question and made some points about how the basis is likely to be set to be prudent, which could explain how the basis for year end 2014 has been set (and to help explain why it is different to the actual experience in half year 2014).
Anyway, there was nothing about the assumptions having margins for prudence in the examiners report for this question.
My question is - is my point about prudence correct here? Under Solvency I, the EEV assumptions must have some margins in them relative to best estimate so that the PVIF is positive.
P.S. I'm not trying to ask whether I'd score any marks for such arguments in the exam, rather the question is: am I correct in principle?
P.P.S. I also appreciate that, if a question like this were to be asked again, it would likely be under Solvency II rules and so the basis used in the EEV calculation would be best estimate, which would make the above points irrelevant.
In this question we are given the year end 2013 basis, the actual half year 2014 experience and asked to discuss why the company has set the year end 2014 basis as it has.
This company is using Solvency I rules. We can tell this because the PVIF is strongly positive in the table for question 1.(ii).
I had a go at this question and made some points about how the basis is likely to be set to be prudent, which could explain how the basis for year end 2014 has been set (and to help explain why it is different to the actual experience in half year 2014).
Anyway, there was nothing about the assumptions having margins for prudence in the examiners report for this question.
My question is - is my point about prudence correct here? Under Solvency I, the EEV assumptions must have some margins in them relative to best estimate so that the PVIF is positive.
P.S. I'm not trying to ask whether I'd score any marks for such arguments in the exam, rather the question is: am I correct in principle?
P.P.S. I also appreciate that, if a question like this were to be asked again, it would likely be under Solvency II rules and so the basis used in the EEV calculation would be best estimate, which would make the above points irrelevant.