I'm struggling with the statement in chapter 21 pg 18: "the amount that may be transferred from the long-term insurance fund is still determined by INSPRU." As under MSB there are several changes to get from the FSA basis. These include different technical provisions and the deferral of initial expenses. So I guess my question is how can the balance of the long-term business technical account equal that of form 40?
I suppose the basis of your question is the penultimate block of core reading text in chapter 21 page 17? If this is the case then I think its as follows: As you mentioned there are tweaks to restate from FSA to MSB. Starting with the situation where no differences exist between the two bases, then obviously profits on both bases are identical. If there are differences in bases, then immediate thought is that profits on MSB technical account balance would depart from FSA Form 40 profits. This is true, and assuming no surplus distribution to either policyholders or shareholders, the FFA figure in MSB is changed accordingly. However recall that the MSB technical account has a component "change in FFA" (see core reading in same chapter, page 15.iii). I think this item absorbs all the differences so putting it back as a "balancing item" in the Form 40 --> MSB reconciliation means the end positions could be the same. Sorry, the explanation sound as if there is circularity but I don't think there is. May be other guys can add to the thread or make it better.
Thanks dok87, I think I tripped myself up with that last paragraph in the core reading as I was wondering how MSB could equal FSA for with-out profits (i.e. no FFA). However, re-reading it I don't think it will and all it is trying to say is MSB is purely presentational and the FSA basis would be used for any operational aspects e.g. in determining how much can be paid in dividends etc. Please correct me if I'm wrong as I seem to interpret this part of the course differently each time I read it.
