Chapter 9: With Profits Surplus Distribution 1

Question 1

3 Ways of distributing surplus

Answer 1

• Cash bonus
• Increase benefits
• Reduce premiums

Question 2

For additions to benefits, Benefits may be increased in what 3 ways

Answer 2

• Regular revisionary
• Special reversionary
• Terminal
  bonuses

Question 3

Regular reversionary bonus has 3 forms:

Answer 3

• Simple
• Compound
• Super-compound

Question 4

Bonus earning capacity

Answer 4

Rate/rates of bonus those contracts can sustain over future lifetime, on a set of assumps wrt future experience.

Question 5

Why special reversionary bonus?

Answer 5

• Restructuring of WP fund
• Demutualisation
• Takeover

Question 6

Most common form of Accumulating WP

Answer 6

Unitised WP

Question 7

Accumulating WP

Answer 7

Think of a bank account. The values are in PV terms. Bonuses declared in PV terms

Question 8

Premium rate

Answer 8

Implicit relationship between single prem on conventional product and benf granted.

Question 9

Unitised WP

Answer 9

• If at surrender the unit fund less surrender penalty is higher than AS
  => Can apply market value reduction

Question 10

Premiums for unitised WP may be: (3)

Answer 10

• Single premium
• Recurring lump sums
• Regular

Question 11

Bonus distribution considerations (3)

Answer 11

• Consistent with PRE’s
• Equitable between diff categories/generations of PH
• Should not threaten company Ito:
• business plans
• investment strategy
• solvency

Question 12

Reasons for deferring surplus distribution

Answer 12

SOFP

Solvency position (Improve)
Objectives of business
Funding source
Policyholder expectations (meet)