September 2007 q1 part iv

Discussion in 'SA2' started by juvefreak, Apr 11, 2013.

  1. juvefreak

    juvefreak Member

    Dear all. I have a question relating to

    September2007 Examiners' report Q1(Iv)(c)"reinsurance of mortality risks".paragraph 2 states:
    "Realistic reserves for both types of without profits business (term assurances and annuities) would increase following reinsurance, as the present value of future profits would likely reduce due to the costs of reinsurance."

    I'm abit confused as I would have thought that reinsurance would reduce the reserves rather than increase them?
     
    Last edited by a moderator: Apr 11, 2013
    juvefreak, Apr 11, 2013
    #1
  2. Mark Willder

    Mark Willder ActEd Tutor Staff Member

    The realistic reserve is the expected present value of the money coming in less the money going out, using realistic assumptions. We expect that the reinsurance premium will be bigger than the expected recoveries, so we are paying out more than we get in. Hence realistic reserves rise.

    Best wishes

    Mark
     
    Mark Willder, Apr 11, 2013
    #2
  3. Jimmy white

    Jimmy white Member

    You would expect the PVFP to fall as some of the future profits arising from the release of margins throughout the run-off of mortality and longevity risks would now be transferred to the reinsurer. Remember credit is taken for the PVFP of the WP business when setting realistic reserves in Pillar 2.

    Studying till 3AM is pretty hard core BTW!
     
    Jimmy white, Apr 11, 2013
    #3

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