Actxl (Gareth)

[billy idol]

Gareth, I've tried emailing you through your website but I seem to get undeliverables all the time (this could be because I tried to attached something) so if you don't mind I thought I would post here.

I've had a quick look through your valuation spreadsheet which I downloaded from www.actxl.com and have some comments:

It appears that you want to do a Projected Unit Credit valuation for past service - if that is so then I would disagree with the way you value the past service portion of death in service and ill-health benefits (unless I have mistakenly interpreted your formulae). The benefits should be valued using: (past service)/(past service + t) * q * a * benefit

That is, you should value (past service)/(service to event date) at each point where a decrement occurs for ill-health and death. You appear to be valuing (past service)/(total service) which understates the liability for the death in service and ill-health benefits. Of course I may be mistaken - just an observation on your program and I'm not entirely sure what benefits are provided by the rules of the sample fund that is being valued.

If you pm me another email address I will send you the attachment I wanted to send.

[Gareth]

Hi,

thanks for letting me know there's a problem with the email, i'll pm you an alternative email address.

i am working on the valuation methods usually applied in the UK. The two popular ways of dealing with risk benefits (ill-health or death benefits) are either:

a) value N x prob of death x benefit as past service

b) value N / NS x prob of death x benefit as past service and remainder as future service

where N = past service and NS = potential future service

it's essentially a way of not reserving fully for risk benefits, on the basis that these do not really accrue like pension.

Let me know if I am missing something here.

Incidentally, I might as well say here that i will be releasing a new version soon that allow discounting to be carried out using a yield curve - i.e. taking a fair value accounting approach where you discount each future cashflow using the appropriate point on the yield curve...

Thx

Gareth