Hi all, I am bit confused on the calculation of company's profit. The profit that company earned in a year can be defined as the change of free assets (i.e. change in value of A-L (A1-Ao) – (V1-Vo)) However, refering to CMP Chapter 19- Setting Assumptions Section 2.4 (page 9), The example says: Liab= 100 payable in 1 year's time Current Asset value = 105 Supervisory reserving basis = 3% p.a. Realistic basis=6% p.a. Ignore mortality and expenses. When we wish to calculate the profit using a best estimate valuation, they take : Value of assets - Realistic Reserve = 105 - 100/1.06 = 10.66 Isn't this net asset instead of profit? I couldn't link this to the formula as i mentioned earlier. Corrrect me if I am wrong. Thanks heaps.
Hi I think it might be helpful to distinguish between: 1. profit/surplus arising over a year (A1 - A0) - (V1 - V0) 2. profit/surplus at a point in time (A - V) The Chapter 19 example you refer to is calculating profit at a point in time rather than profit arising over a year. Hope this helps? cheers Lynn
