Can someone please explain this I think I am getting confused. Say we have a simple contract to pay 100 in a year. Expenses are estimated on pricing basis to be 10 upfront with av interest rate of 5% the office premium is 105 Now we reserve for this. So we use prudent assumptions (say higher interest rate and expenses). Ignoring interest, say prudent expenses are 20. So we would hold reserve = 95 + 20 = 115 Now in q 4.2 it says expense surplus looks on statutory basis at office premium - net premium less expenses. If actual expenses are 15. Now to look at this surplus are they saying we use the office premium but recalculated on the statutory basis (I.e the 115) and then deduct the NP (is this also on stat basis). So in this case we would get 115 - 95 - 15 = 5 surplus. Now moving to EV assuming EEV. What basis would we use for the EV for assumed expenses? A more realistic basis - but would it be more prudent than the pricing basis? Thanks
