THE REALISTIC REPORTING OF WITH-PROFITS BUSINESS

This paper was written at the request of the Life Research Committee of the United Kingdom Actuarial Profession's Life Board. It concerns the valuation of U.K. with-profits business, with particular attention to the market-consistent 'realistic reporting' basis currently being used in...

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Bibliographic Details
Published in:British actuarial journal 2004-01, Vol.10 (2), p.223-316
Main Authors: Hare, D. J. P., Craske, G., Crispin, J. R., Desai, A. J., Dullaway, D. W., Earnshaw, M. A., Frankland, R., Jordan, G. A., Kerr, M. G., Manley, G. M., Mckenzie, J. L., Rae, R. A., Saker, M. C.
Format: Article
Language:English
Subjects:
Business structures
Calibration
Corporate liability
Financial liabilities
Flexible spending accounts
Guarantees
Liability insurance
Policyholders
Solvency
Stochastic models
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Summary:This paper was written at the request of the Life Research Committee of the United Kingdom Actuarial Profession's Life Board. It concerns the valuation of U.K. with-profits business, with particular attention to the market-consistent 'realistic reporting' basis currently being used in the U.K. by the regulator, the Financial Services Authority (FSA). The paper surveys recent regulatory activity concerning the development and introduction of the new valuation approach, and puts it into the context of a survey of alternative methodologies, both deterministic and stochastic. The particular issues arising when considering prudential solvency are discussed, and various approaches are reviewed and compared with market consistent methods. Numerical examples are given, which demonstrate potential issues (regarding comparability and consistency) with the FSA's proposed approach — in particular the sensitivity of results to model calibration. The authors support the FSA's move to a stochastically-based framework for solvency measurement, but highlight some issues which need to be taken into account.
ISSN:1357-3217
2044-0456