Choosing an EBS Reporting Period

The first step in preparing to use Earnings by Source (EBS) features in AXIS is to select the appropriate EBS Reporting period. You may choose an annual period throughout, or you may choose a monthly or quarterly reporting period during the projection periods when monthly projections are specified. The choice does impact the analysis in several ways.

The algebraic formulas, which ensure that calculated components of earnings sum to actual total earnings, require that the change in actuarial reserve over the period studied be analyzed by assumption. In the current implementation of EBS in AXIS, the release of reserves upon termination (except for "miscellaneous offs") has been assumed to occur at the period end instead of at the exact time of the event. Accordingly, you have the option of specifying whether the basic “EBS Period” to be used for EBS reports is a month, quarter or full year.

The EBS Reporting period is determined by a parameter setting on the Earnings by Source Tab of the Dataset Parameters dialogue; EBS reports are designed to be viewed according to the period defined by this parameter, and the components of earnings reported over shorter periods may not reconcile to the total book profit line because of reserve release timing assumptions.

The choice of EBS Reporting period also affects the approach taken to the expected terminations after the first month of the historical earnings period. If the EBS Period chosen is a month, then the expected experience in each month is based on the actual inforce at the beginning of each month, as defined by the preceding actual transactions. If however the EBS Period is a quarter or year, then the expected experience in the second and third month of the year, for example, will be based on the inforce at the start of the year and the reserve assumptions applied to that inforce without regard for any actual terminations in the first or later months. 

It is important to be aware of an issue in calculating Investment Income which arises when the EBS period selected is less than the period selected as the Profit Transfer Frequency in Dataset Parameters. When AXIS develops the earnings in a financial month other than the first month following a profit transfer, actual investment income in AXIS is separated into two components:

a. the investment income arising from the reserves at the beginning of the month and cash flows during the month, which would be part of the monthly earnings on a stand-alone basis, and

b. the excess (or reduction in) investment income calculated on the cumulative net profits before tax from prior months, pending profit transfer.

The amounts described in component (b) are reflected in the Calendar Year Projections in the line “Invest inc adjustment on CF & res”. This adjustment is necessary because AXIS accumulates profits according to the profit transfer frequency (normally to the end of the financial year) before adjusting surplus with net income. 

Within the EBS Reporting framework, the Gain from Investment Income component of earnings assumes that any earnings within EBS periods are transferred to free surplus at the end of each EBS period. If the Profit Transfer Frequency selected in Dataset Parameters specifies that earnings are transferred out at intervals longer then the EBS period, the extra investment income in any EBS period arising from the retained earnings in prior periods is included in the Investment Income Adjustment line at the bottom of the Vendor defined report, in order to balance with the total Profit on Cashflow & Reserve reported in the Calendar Year Projections. Note that since the Profit Transfer Frequency is normally set to annual, it will be quite common, when the EBS period is monthly or quarterly, for amounts to appear on this line in any EBS period after the first one in the financial year.