Asset Share Flashcards
Difference between unit fund and asset share
Unit fund: the accumulation of ALLOCATED PREMIUMS less LEVIED CHARGES
Asset share: the accumulation of ACTUAL PREMIUMS less ACTUAL CHARGES
How do surrender penalities reduce risk of loss on a policy?
Occurrence: the existence of such a penalty may reduce a policyholder’s incentive to lapse.
Size: the surrender penalty will hopefully reduce the surrender benefit to below the asset share, leading to a proft on surrender for the insurer
Slightly distant factors that affect profitability
CRAMP DRUID
Capital management
Reinsurance strategy
Admin procedures
Monitoring and feedback systems
Profit distribution
Discontinuance terms offered
Reserving
Underwriting procedures
Investment strategy
Data handling procedures
Asset share (basic definition)
The accumulation of premiums with interest, less expenses and the cost of cover, using the experience of the policy to date.
Asset share (detailed definition)
The accumulation of:
Premiums
Investment income
Miscellaneous profits
Less
Commissions and expenses
Cost of all benefits in excess of asset share
Tax
Profit transfers to shareholders
Cost of capital required to support new business strain
Contribution to the undistributed surplus of the with-profits policyholder funds required to support smoothing of bonuses and increase investment freedom
Uses of the asset share
1) Provides an upper limit to the surrender value payable to avoid a loss on the policy
2) Key tool in the determination of with-profits bonus rates
3) Helps to determine terminal bonus rates
4) Can be used as a reference to determine equity and fairness
How to calculate a per-policy asset share
Add to the asset share per policy in force at time t the premium and subtract the per-policy expenses, accumulate this at a suitable rate of interest and subtract the sum assured per death within the year. Divide this whole amount by the probability of survival through the year to obtain the asset share per policy in force at time t+1
