M
Mbotha
Member
It may help to think of calculating the PVIF as follows:
Allocate assets to the reserve (this may be BEL only if the Risk Margin is allowed for in the required capital (and modelled separately) as part of EV or could be the Technical Provisions (TP) if otherwise). As an approximation to BEL, the asset share could be used plus any with-profits guarantees).
Having allocated assets, the assets and in-force business are projected forward on an actively-reviewed, broadly realistic basis.
If it is a 90:10 fund, shareholder transfers made are one-ninth of the cost of bonuses (RB and TB) and therefore projected future bonus rates are required.
The excess of projected assets over projected BEL (or TP) are the shareholder transfer each year. These transfers are discounted back at a suitable risk discount rate (RDR) and it is this that equals the PVIF component of the EV calculation.
Em
I was hoping to get some help on this but thought I'd start a new thread. I'm struggling to grasp the way it's explained above given that
PVIF = PV(shareholder cashflows) + PV(change in reserves)
My understanding is:
- The projected assets would also include:
(charges for cost of smoothing, capital, guarantees)
- actual cost of smoothing, capital guarantees
+ (charges for expenses - actual expenses) if asset shares deduct charges for expenses
- (expenses not charges to asset shares) in the case where actual expenses are deducted from asset shares
- claims in excess of assets shares
+ investment income
+ 1/9th of the cost of future bonuses (in a 90/10 fund)
These are the shareholder cashflows that we're projecting. Is that right?
2. Future bonus rates are needed for the BEL calculation and, because shareholder transfers are 1/9th of the cost of bonuses in the BEL, this is where we'd get the last item in the list above from.
3. I'm not sure I understand how the shareholder transfers are the "excess of projected assets over projected BEL?
4. My feeling is that there would always be a PVIF component iro WP business because we're comparing shareholder cashflows with policyholder liabilities - which is not 'like-for-like' as in the case of without profits business. Is that right?
- actual cost of smoothing, capital guarantees
+ (charges for expenses - actual expenses) if asset shares deduct charges for expenses
- (expenses not charges to asset shares) in the case where actual expenses are deducted from asset shares
- claims in excess of assets shares
+ investment income
+ 1/9th of the cost of future bonuses (in a 90/10 fund)
These are the shareholder cashflows that we're projecting. Is that right?
2. Future bonus rates are needed for the BEL calculation and, because shareholder transfers are 1/9th of the cost of bonuses in the BEL, this is where we'd get the last item in the list above from.
3. I'm not sure I understand how the shareholder transfers are the "excess of projected assets over projected BEL?
4. My feeling is that there would always be a PVIF component iro WP business because we're comparing shareholder cashflows with policyholder liabilities - which is not 'like-for-like' as in the case of without profits business. Is that right?