M
Max Clinton
Member
Hi, I have a question on the use of volatility adjustment for WP or UL business.
So the purpose of the VA is to reduce the risk of forced sales of assets (bonds) in the event of extreme bond movements. It does this by increasing the risk free rate used to discount liabilities, thus reducing the value of liabilities to offset the fall in asset values.
So would the VA be able to be used for UL/WP business where these were (say) invested solely in equities not bonds? This would be beneficial as we could project forward unit fund / asset shares at a higher risk free rate which would increase value of proportional charges (UL) / reduce chance of guarantees biting and so reduce cost of guarantees (WP). So in both cases this could reduce the SII BEL, but would this be allowed?
Thanks,
Max
So the purpose of the VA is to reduce the risk of forced sales of assets (bonds) in the event of extreme bond movements. It does this by increasing the risk free rate used to discount liabilities, thus reducing the value of liabilities to offset the fall in asset values.
So would the VA be able to be used for UL/WP business where these were (say) invested solely in equities not bonds? This would be beneficial as we could project forward unit fund / asset shares at a higher risk free rate which would increase value of proportional charges (UL) / reduce chance of guarantees biting and so reduce cost of guarantees (WP). So in both cases this could reduce the SII BEL, but would this be allowed?
Thanks,
Max