Free Assets, Long-Term Insurance Fund and Shareholder Fund

[Lost1]

Hi,

Getting a bit confused as to where the Long-Term Insurance Fund and Sharehodler Fund fit into the Free Assets.

Say Assets = 100
Statutory Liabilities = 70
then Free Assets = 30

Is part of this 30 then split into the Long-Term Insuarance Fund and part into the Shareholder Fund?

 

[Mike Lewry]

Yes, that's essentially it.

Let's suppose that the assets figure you give represents the total Peak 1 Assets and that the statutory liabilities figure includes the CRR. Then the free assets is 30 and will be represented by any excess assets in the long-term fund that aren't needed to cover the liabilities plus the assets in the shareholders' fund.

The assets in the shareholders' fund will be 100% owned by shareholders, but the free assets in the long-term fund might be shared between the shareholders and any with-profits policyholders, depending on whether the fund is structured 90/10 or 0/100, for example.

 

[Lost1]

Thanks.

Now I'm wondering whether the shareholder fund gets valued separately at each valuation?

Taking a without-profits fund, let's say at the beginning of the year Free Assets are 30 as below. Excess assets in long-term insurance fund are 20 of those and the shareholder fund is worth 10.

Now at the end of the year, say assets remain unchanged at 100 (and say that the shareholder fund valued in isolation has remained at 10), but liabilities increase to 90. Now there is only 10 worth of free assets. Would money then be transferred from the shareholder fund back into the long-term insurance fund to keep it at a reasonable level?

 

[1495_sc]

Hi, I am curious to follow this thread. Will shareholder fund be rebalanced if liabilities increase?
Also, this example doesn't consider capital requirement. Will shareholder fund be equal to assets less capital required less liabilities?

 

[Lindsay Smitherman]

I think you are getting confused about what is meant by the 'Shareholder fund': it doesn't contain any policies (these are written into the long-term business fund(s) of the company).

The 'Shareholder fund' fundamentally contains capital injections made by shareholders (eg on initial share purchase) minus any capital injected from there into the long-term business fund(s), plus profit transfers from the long-term business fund(s) back into the shareholder fund, minus the dividends paid out to the shareholders (plus accrued investment earnings, of course).