Chapter 8: Asset shares Flashcards
1
Q
The asset share of a policy: (9)
A
The asset share of a policy is the accumulation of
- premiums,
- investment income, and
- miscellaneous profits
less
- commission and expenses,
- cost of all benefits in excess of asset share,
- tax (tax on investment including any reserves made for future tax liabilities)
- profit transfers to shareholders
- cost of capital required to support new business strain, and
- contribution to the undistributed surplus of the with-profits policyholder fund required to support smoothing of bonuses and increase investment freedom.
2
Q
The asset share in relation to surrender value:
A
The asset share is the maximum surrender value payable under any policy in order to prevent the policy from causing a loss to the company.
3
Q
Different uses for an asset share in the management of a life insurance company: (6)
A
- Bonus declarations - assists in deciding on the size of the terminal bonuses and sustainability of reversionary bonuses.
- Monitor fairness - The asset share relative to the benefit due could be used to monitor fairness across tranches of business and policies.
- Surrender values - On average, the benefit on surrender should not exceed the accrued asset share.
- Market Value Adjustment Factor - The asset share compared to the smoothed benefit gives an indication of any market value adjustment factor that may be required.
- Policy alterations - On average the value of the benefit after alteration should not exceed the accrued asset share.
- Profit distribution - Gives indication of surplus arising, which can then be share between policyholder and shareholders.
4
Q
Different uses for an asset share in the management of a life insurance company: (6)
A
- Bonus declarations - assists in deciding on the size of the terminal bonuses and sustainability of reversionary bonuses.
- Monitor fairness - The asset share relative to the benefit due could be used to monitor fairness across tranches of business and policies.
- Surrender values - On average, the benefit on surrender should not exceed the accrued asset share
- Market Value Adjustment Factor - The asset share compared to the smoothed benefit (under a unitized with profit contract) gives an indication of any market value adjustment factor that may be required.
- Policy alterations - On average the value of the benefit after alteration should not exceed the accrued asset share.
- Profit distribution - gives an indication of surplus arising, which can then be shared between policyholders and shareholders.