Retrospective asset share calculation

[Avviey]

Hi

When asset share is calculated retrospectively for the purpose with-profit benefit reserve under Peak 2, either actual expenses or product charges are being deducted from the asset share, this method does not explicitly show the expense reserve. But at the same time, if adopting a prospective asset share calculation, expense reserve can be quantified by discouting future expense cash flows. It is likely that the asset shares are different by using these two methods, but can we still say that this amount of expense reserve is roughly part of the with-profit benefit reserve? Thanks very much for your help.

 

[Em Francis]

Hi

When asset share is calculated retrospectively for the purpose with-profit benefit reserve under Peak 2, either actual expenses or product charges are being deducted from the asset share, this method does not explicitly show the expense reserve. But at the same time, if adopting a prospective asset share calculation, expense reserve can be quantified by discouting future expense cash flows. It is likely that the asset shares are different by using these two methods, but can we still say that this amount of expense reserve is roughly part of the with-profit benefit reserve? Thanks very much for your help.

Hello

If a retrospective method is used to calculate asset share, the expense deduction will likely be based on past expenses and apportioned. I would avoid using the term 'expense reserve' when discussing the retrospective method as it is looking at earned asset share.
Please let me know if this has not answered your question.

Thanks
Em

 

[Avviey]

Thanks Em.

But if a realisitc basis company that adopts restrospective method for asset shares, where is the explicit reserve for expenses then? The liability for with-profits under Solvency I Pillar I Peak 2 measure is based on with profits benefit reserve (which equates to restrospective asset share) + future policy-related liability. There is no explicit reserve for expenses to be incurred in the future for providing this business and this is what I'm confused about. Thanks alot.

 

[Em Francis]

Thanks Em.

But if a realisitc basis company that adopts restrospective method for asset shares, where is the explicit reserve for expenses then? The liability for with-profits under Solvency I Pillar I Peak 2 measure is based on with profits benefit reserve (which equates to restrospective asset share) + future policy-related liability. There is no explicit reserve for expenses to be incurred in the future for providing this business and this is what I'm confused about. Thanks alot.

Hi

No, there is no explicit reserve but an allowance could have been made by a combination of:
1) expense deductions in the past (so current AS would be lower than would otherwise be) and
2) projected deductions in future from asset shares (when determining the cost of guarantees etc).
These expenses deductions would then implicitly impact the overall future policy-related liability.

Hope this makes sense.

Thanks

Em