Chapter 10 - With- Profits Surplus Distribution (2)

Question 1

What is the Revalorisation method

Answer 1

The profit or surplus, to be given to a particular contract is expressed as a percentage, r% say, of that contracts supervisory reserve.

– the benefit under the contract and the premium payable are then increased by the same amount

Question 2

What is the “savings” profit

Answer 2

It represents the profit from the assets and can be distributed, in whole or part by the “revalorisation” method

Question 3

What is the “insurance” profit

Answer 3

It is the profit arising from actual experience being better than expected for all sources of profit other than the return on the assets

Question 4

What is the contribution method

Answer 4

It is that surplus should be distributed among policies in the same proportion as those policies are judged to have contributed to surplus

Question 5

What are the three different bonus methods

Answer 5

1. Addition to benefits
2. Revalorisation
3. Contribution method dividends

Question 6

Where does policyholder expectations arise from with respect to the level of bonuses given

Answer 6

These expectations may be built up from:
- documentation issued by the life insurance company
- the company’s actual past practice
- the general practice in the life insurance market

Question 7

What is the dividend given to a particular policyholder under the contribution method

Answer 7

Dividend = (excess interest on the reserve plus premium) [interest surplus] + expected death strain less the actual death strain [mortality surplus] + excess of expected expenses over actual expenses [expense surplus]

Question 8

Deferral of profit distribution under Revalorisation and contribution method

Answer 8

Revalorisation method
- Deferral of profit does not appear to arise with this method
Contribution method
- Can lead to significant deferral of profit