September 2021 Q7 (ii)

Hi,

I just want to check my understanding of this solution in the examiners report:

It states that there are "larger reserves and therefore assets" - is this just because more assets will be required to back the increase in liabilities when acquiring this new business?

Thanks in advance

 

Hi ASK01, I cant seem to locate this comments in the ActEd solutions anywhere - please double check your question relates to September 2021 Q7 (ii). If it does, please confirm where you are looking in the ActEd materials.

Thanks

 

Apologies it is Q6(ii) in the IFOA examiners report

 

Thanks. The idea here is that there will need to be reserves to cover the liabilities from the new business that's been written. Therefore, increasing the levels of reserves means that more 'money' would need to be set aside. Insurance companies wouldn't just keep cash, they would invest in various assets. So, by writing more business, more assets would be held. As such, the insurance company may invest in larger assets, such as direct properties, with a view to obtain a high return.