Chapter 8 - Asset Shares

Question 1

Deductions that are made for asset share calculations: (6)

Answer 1

BUT CICE

1. B enefits (cost of providing) in excess of asset share
2. U ndistributed surplus contribution in with profits PH fund
3. T ransfer of profit to shareholders
4. C ommissions paid
5. I nvestment income tax (including capital gains tax on unrealized capital gains)
6. C ost of capital necessary to support contracts in early years
7. E xpenses incurred

Question 2

Define earned asset share:

Answer 2

It is a kind of retrospective policy value where the basis used is the company’s past actual experience

It is the accumulation of the premium paid, less deductions, plus allocations of miscellaneous profits, at a suitable rate of investment return.

The level of allocations and deductions and the rates of investment return will usually reflect the company’s past experience

Question 3

Uses of asset share: (4)

Answer 3

1. Might be a guide in setting bonus rate for with-profit contracts
2. Might assist in determining the surrender value
3. Compare policy’s asset share with claim amount (asset share - claim amount = profit)
4. Compare asset share with supervisory reserves (supervisory reserve - asset share = capital support)