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sep 2018 q1 vi

Discussion in 'SA2' started by Cynthia Foong, Sep 24, 2019.

  1. Cynthia Foong

    Cynthia Foong Member

    Hi

    For September 2018 Q1 part (vi), on the scenario of increase in equity, the answer for the sensitivity on SCR states that the Equity Risk SCR will increase due to there being higher exposure to equities. This makes perfect sense, but I'm wondering if I could bring it further to talk about the change in liability, but I'm not sure if the sentence below makes sense. Would love your opinion on it.

    With a higher equity market value, fund value increase, so charges increase, therefore reducing BEL. With lower BEL, the equity risk SCR will reduce, as we are starting from a lower starting point. This impact, however, is likely to be smaller than the change in asset value.
     
    Cynthia Foong, Sep 24, 2019
    #1
  2. Em Francis

    Em Francis ActEd Tutor Staff Member

    Hi Cynthia

    Yes, this makes sense but it would have a smaller impact on the SCR than the increase in the equity stress from the higher exposure to equities.
    Where it does have a bigger impact is on the own funds as it will reduce BEL and so increase free surplus. Hence, within the solution, it was mentioned under the 'own funds' section rather than the 'SCR' section.

    Hope this helps.
    Thanks
    Em
     
    Em Francis, Sep 26, 2019
    #2
    Retrieva likes this.
  3. Cynthia Foong

    Cynthia Foong Member

    Got it, thanks Em!
     
    Cynthia Foong, Sep 27, 2019
    #3

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