Bonus Rates, Valuation and Solvency During the Transition Between Higher and Lower Investment Returns

Abstract

1.1. The work for the paper was carried out by the authors as members of the Bonus and Valuation Research Group of the Faculty of Actuaries. The previous paper produced as a result of work done in the Bonus Research Group (Studies of Reversionary Bonus using a Model Office, TFA 37, 91) used a deterministic model office. Future interest rates and returns from equity investment were assumed known and the effects on reversionary bonus of variations in the valuation bases, rates of expansion and inflation of expenses were examined. The assumption of an exact knowledge of future investment returns was a great simplification and begged many of the important questions facing a life office actuary. In this paper the Research Group has paid attention to the change in the value of the assets under variations in financial conditions.