Chapter 8 : Asset Shares

Question 1

What is an asset share

Answer 1

Asset shares are most commonly used for with-profits contracts. An asset share is the accumulation of premiums less deduction associated with the contract, all accumulated at the actual rate of return earned for investments

Question 2

What are some monies in?

Answer 2

1. Premiums paid
2. Investment income including unrealized capital appreciation.
3. Less obvious: An insurance company may be organized such that profits from without-profit business may flow into the with-profit fund and become property of the with-profits policyholders. They are added to the asset shares of with-profit policies

Question 2

Where are asset shares important?

Answer 2

1. Distribution of profits in a with-profits policy
2. Setting surrender values (these cannot be above asset share)
3. Calculating profit or loss when a termination occurs
4. NB strain = Asset share- Supervisory reserve (at start of a policy)
5. Calculating terminal bonuses
6. Use to split profit equitably between different generations and classes of policyholders.

Question 2

Adjustments that can be made to an asset share of a with profits policy

Answer 2

1. Share in profit/loss from without profits business
2. Tax on investment returns
3. Tax of expense
4. Transfer of cash to shareholder or for cash distributions to p/holders
5. Cost of capital to support contract at early duration
6. Return on capital to support contract at later durations
7. Contributions to the free assets needed to support smoothing