WP Management - Discontinuance Flashcards
1
Q
What can a company aim to do on surrender?
A
- Want to pay out underlying smoothed unit asset share
- Reduce bid value of units using MVR
- Add a TB
2
Q
What must SV be in relation to the PPFM?
A
- Consistent with PPFM statements about SV vs. AS
2. Signed off by WPA
3
Q
What are the methods of calculation of discontinuance terms?
A
- Retro - can calculate the asset share and so prove it fits with PPFM policy of surrenders
- Prosp - add declared bonuses and allowance for future bonuses to this value
4
Q
What is the weakness with prospective method? What is a strength?
A
- Might not produce values close to earned asset share
- So the philosophy of paying out a proportion of EAS on surrender doesn’t work
- Might not run into the maturity value, depends on how it allows for TB
- It does however allow a split of the value of basic sum assured and bonuses, so allows a surrender of just bonuses
5
Q
Explain the thoughts behind how to calculate the SV?
A
- Guarantees on WP are significantly less than NP
- So policyholder should be rewarded for takjing extra risk if it comes off
- Equitable here means SV to be related to smoothed asset share, with regard to objectives/Sv philosophy of company
- RB may be surrendered separately, but value cannot be retrospective
- So prospective RB and benefits calculated
- Compare (5) with retrospective to determine TB
- Prospective to use BR and consistent RB rates
- Reasonable value of RB means:
a. Value <=EAS
b. Same TB scale allowed at maturity as for if no bonuses surrendered
6
Q
What is another name for retrospective asset share?
A
EAS
7
Q
What are the main assumptions in calculating SV’s?
A
Investment return - expected return on backing assets
Future RB rates
Tax - for BLAGAB contracts
Expense relief - if early on may not have got relief for high initial expenses as they’re being spread over 7 years
Market consistency - use this to compare with actual SV basis
