The acted notes on page 4 of chapter 11 show two versions of the liability split for Peak 1 for Realistic Basis Life firm....why is that?
Do you mean under the regulatory peak (peak 1)? If thats what you mean, then i think the rectangle on the far right of 3 rectangles under peak 1 is just to illustrate how the WPICC is derived.
Thanks, that's what I've meant. I guess the reason for such presentation is that a company may or may not have WPICC, thus two versions (one with and one without WPICC).
Hello, in regards to Pillar 1 Peak 1 Mathematical Reserves - ch 11 page 6..... Does the ST2 chapter on Supervisory Reserves still apply here?
And can I also confirm the meaning of the VALUATION STRAIN in the context of mathematical reserves? Would valuation strain only occur if we used assumptions without sufficiently prudent margins?
Subject ST2 describes how gross and net premium reserves are calculated which are relevant to the mathematical reserves described in Chapter 11. However, the Groupe Consultatif principles described in ST2 do not apply to the calculation of reserves in the UK. These principles were set in 1990 and in many respects have been updated by UK regulation. Best wishes Mark
In chapter 11 on page 6 it says: • Mathematical reserves must avoid any future valuation strain. Future valuation strain occurs if the accumulated reserves and cashflows (premiums less claims less expenses) are insufficient to set up the required reserves in the future. We need to check that this will not be the case on the reserving assumptions. Normally it should be sufficient to set up prudent reserves now as you suggest. However, we'd need to be more careful with unit-linked policies if negative cashflows (expenses bigger than charges) occur before positive cashflows (charges bigger than expenses). For this reason we have to work backwards year by year to calculate non-unit reserves in the way suggested in Subject ST2. Best wishes Mark
