15. South African Surplus Distribution Requirements

Question 1

Types of equity

Answer 1

Horizontal
- similar classes of policyholders treated equally (duration, sum assured etc.)

Vertical
- where distinction made between classes of policyholders, the degree of the distinction should be proportional to the differences
- for example, bonuses declared during periods of high investment returns should be higher than those achieved during periods of low investment returns
- for smoothed bonus business, there is a conflict between smoothing investment return and complete equity between generations of policyholders