Ch 9 + 10: WP surplus distribution

Question 1

Factors to consider when determining bonus philosophy and split between revisionary and terminal bonuses

Answer 1

SISTAR CEBESE
- Solvency and free assets
- Investment strategy
- Smoothing of bonuses and sustainability of revisionary bonus
- Terms and conditions - must adhere to these e.g. no negative TB, must meet any guaranteed bonuses
- Asset share
- Regulations and professional guidance
- Competitors
- Equity between different categories/generations of policyholders: must group pHs by similar characteristic e.g by duration in force to determine AS and hence fair TB
- Business plans (future business plans) e.g. business volumes - Consider impact of TB/RB on future business plans e.g. impact on potential new business
- Expectations (PRE): informed by past practice, industry practice and what competitors are doing in term of bonus declarations, pH can expect bonus declarations that above inflation
- Sources of surplus that can be distributed to pH
- Extent of deferral of profit distribution

Question 2

Methods of distribution WP surplus

Answer 2

• Addition to benefits: conventional WP policy
• Addition to benefits: accumulating WP policy
• Revalorisation
• Contribution method dividends

Question 3

Factors on which to compare the different surplus distribution methods

Answer 3

SIDES
- Simplicity ( of calculating bonus, ability for pH to understand)
- Investment freedom
- Discretion
- Equity and
- Smoothing