Ch 8: Asset shares

Question 1

Asset share of a policy definition

Answer 1

• Accumulaton of premiums paid rolled up with interest, less expenses and any cost of cover.
• Similar to a gross retrospective reserve however actual experience is used to calculate asset shares rather than any assumed basis.

• Accumulation of premiums less deductions associated with the contract (plus, for with-profits policies, an allocation of profits on without-profits business if appropriate) all accumulated at the actual rate of return earned on investments.

Question 2

Asset share deductions

Answer 2

• Commissions paid and expenses incurred
• Cost of providing all benefits in excess of asset share - possibly on a smoothed rather than current cost basis.
• Tax on investment income including any reserves made for future tax liabilities
• Transfer of profit to shareholders
• Cost of capital necessart to support contracts in the early years
• Contribution to the undistributed surplus in the with-profits PH fund (supports smoothing of bonuses and the ability to have greater investment flexibility.

Question 3

Asset share formulas

Answer 3

• For aggregate asset share calc deduct full death benefit sum assured
• For individual asset share calc deduct benefit in excess of asset share