• At one point in the dividend philosophy discussion, there was some consideration of how to enunciate a principle that would clearly state that new money presentations for illustrations based on elements that reflected a rate of inflation were acceptable, whereas other types of projections were not.
  • This becomes very difficult because inflation can be viewed as the difference in a changed situation.
  • It is a rate of change.
• ⇒  If you take the traditional approach that says that illustrations must be based on current experience, it is the portfolio rate that represents current experience.
• A new money rate may not represent current experience because it includes within it an element that corresponds to inflation.
• If you take a theoretical approach that accepts use of a rate of change as the basis of illustration, for the purpose of investment return, then
  you can easily suggest that you ought to be able to use rate of change in other elements; rates of change in mortality, for example, or expenses.
• As it turned out, we never did manage to enunciate a very clear principle in that regard. It is probably just as well because the actual situation has bypassed the theory in any case. 

-- Thomas Sutton

1983 - SOA - Surplus Distribution and Allocation for New and Inforce Policies, Society of Actuaries - 22p