Chapter 32: Provisions Flashcards
1
Q
2
Provisions
A
calculated amounts that need to be set aside to meet the provider’s future liabilities
2
Q
‘best estimate’
A
A set of assumptions that have equal probability of understating or overstating the values
3
Q
Reasons why a provider would want to calculate provisions
A
- to determine the liabilities to be shown in the provider’s published accounts and reports
- if separate accounts and reports are prepared for the purpose of supervision of solvency, to determine the liabilities to be shown in those accounts
- to determine the liabilities to be shown in internal management accounts and
- reports of the provider
- to value the provider for merger or acquisition
- to determine the excess of assets over liabilities and whether any discretionary benefits can be awarded to set future contributions to a benefit scheme
- to value benefit improvements for a benefit scheme
- to calculate discontinuance / surrender benefits
- to influence investment strategy
- to provide disclosure information for beneficiaries.
4
Q
What will determine the strength of the basis on which values should be produced
A
Purpose and client
* The reason a value needs to be determined
* the needs of the client
* the requirement of any legislative or regulatory authority
Nature of the assets
5
Q
What does an actuary need to calculate appropriate provisions ?
A
- Valuation method
- make assumptions about the future
6
Q
Key assumptions when setting provisions for demonstrating supervisory solvency
A
- The level of solvency
- Prescription of methods/assumptions by supervisory authority
7
Q
A
