Hi, Could someone please help me on the expense surplus on Question 4.1 in Part 4 ( Q & A ) ? [98 x ( 20 x 1.0297 - 22 ) x 20.159 ] + [ 98 x ( 20 x 1.0297 - 22 ) ] Thank you
Hi I think it'll help if you say exactly what the problem is... On the assumption that it's to do with why the solution is what it is, when determining an experience variance (here for expenses) you need to consider the deviation from A vs E over the year (your NAV impact) and also the impact on your value in-force (VIF). There is an impact over the year because actual expenses were £22 but the expenses expected over the year were £20*1.0297 (increased by expense inflation). Hence there is a bigger impact on the net assets (NAV) than was anticipated. The RHS bracket. The story doesn't end there however. This is because there is an impact on your VIF caused from the new time 1 data (in this case caused by actual expenses over the year being different to expected expenses). The VIF impact therefore needs to be quantified, which is what the LHS brackets is capturing The brackets on the LHS captures your VIF impact ('hinted' by the a factor) whilst the RHS captures the A vs. E impact that arose over the valuation year. Hopefully that answered your question, all queries welcome.
