Hi all Can anyone explain to me what the reasoning is behind regulatory basis only firms having to use a net premium valuation for non-unitised with-profits business, whereas realistic basis firms can use a gross premium method?
My understanding with all the additional restrictions on RBOLFs under Pillar 1 Peak 1 is that it is because they don't have to report under Pillar 1 Peak 2. So an RBOLF reports under a strict 1:1 regime only, whereas an RBLF reports under a more relaxed 1:1 but also has to report under 1:2.
So what is the point in relaxing 1:1 regime for RBLF ? Why RBLF and RBOLF do not report under the same rules for 1:1 and RBLF have to follow 1:2 in addition ? Is the point that you relax 1:1 regime because 1:2 regime is more stringent ? But it doeas little sens to me In what way 1:2 is more stringent than 1:1 regime ?
Hi Z But why would a Net Premium Valuation be more strict than a Gross Premium Valuation? (Assuming they both make allowances for reversionary bonuses.) I recon relaxing the Peak 1 conditions for RBLF makes sense. If Peak 2 gives the higher liabilities (incl capital requirements), then the WPICC will even it out anyways.
so you relax Peak 1 to be able to cut it through Peak 2 ??? I still do not see the point in doing that if you calculate the Peak 2 in the same way as in case of RBLF then the result should be the same, do I miss something?
Beacuse in the gross premium valuation you make the allowance for initial expenses and hence the reserve is lower R = PV benefits + PV Renewal Expences - PV Gross Premiums The Gross premium includes the loading for initial expenses so you can deduct more In case of net premium valuation the net premium is calculated to cover only benefits so R= PV benefits - PV net premium as a result under net premium valuation you can have positive reserve and under gross premim reserve you can have negative reserve Half way between the two is the Zillmer adjustment and DAC I hope I am right
