Solvency II - with profits BEL

[echo20]

For with-profits policies, are SII best estimate liabilities calculated prospectively or retrospectively, or does the company have the option?

 

[psychopath 0_o]

I will give it a stab.

All calculations should be done prospectively. You may want to calculate the asset shares using retrospective method but the your best estimate future liabilities should be the present values of all the costs involved (e.g. costs of gtee/option/mortality etc) at the realistic assumptions without a margin.

Also because of the requirement to value assets and liabilities together, the liabilities should broadly reflect any investment returns from the asset side. Saying this, you need to project your asset values based on some assumptions (most likely to be a stochastic model) and value your liabilities based on the asset value and bonus payments in the future.

The bottom line is that if you have WP business, which is big enough, you would be producing your RBS anyway. At this stage, your current ICA should be on some sorts of calculations acceptable to be used for basic S2 calculations, with some modifications to the model/method. Most UK companies should be having a prospective models. If you do happen to have a different models than the majority (i.e. retrospective calculation), you are very likely to have a big ICG multiplier from FSA. In this case, you would be changing your model to do things prospectively. LOL.

If your book is shrinking or small, then judgement needs to be applied on a case-by-case basis.