CH:32 Provisions

Question 1

What are the reason for calculating provisions?

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Answer 1

• determining the value of liabilities for published accounts
• demonstrating supervisory solvency
• determining the value of liabilities for internal management accounts
• valuing the provider for merger or acquisition (or transferring liabilities)
• determining whether discretionary benefits can be awarded
• setting future contribution levels for a benefit scheme
• valuing benefit improvements for a pension scheme
• calculating discontinuance benefits
• influencing investment strategy
• providing disclosure information to beneficiaries
• to provide for expected credit losses for a bank.

Question 2

What is the purpose to calculate a global provision?

Answer 2

• act as additional protection against insolvency
• cover risks, both financial and non-financial, that cannot be attributed to individual contracts
• reflect the degree of mismatching as assets and liabilities

Question 3

What factors affect the strength of basis to use?

Answer 3

• the reason for the valuation
• the needs of the client
• regulation and legislation
• nature of assets may also need to taken into account