Sept 20 Q-3 ii)

[Actuary@22]

Hi

Please explain in Q-3 ii) what do the following points mean,I am not clear:

The guarantee cost could be limited by adjusting the approach used for estate
distribution away from policyholders with guarantees that are heavily in-the-money,
given they could be said to have effectively had their share of the guarantees

However, it could crystallise any losses that had taken place, meaning if markets
reverted then losses would be maintained…
… and reduce the potential for future returns

Thanks

 

[Em Francis]

Hi

Please explain in Q-3 ii) what do the following points mean,I am not clear:

The guarantee cost could be limited by adjusting the approach used for estate
distribution away from policyholders with guarantees that are heavily in-the-money,
given they could be said to have effectively had their share of the guarantees
Thanks

If they are in the money then the policyholder is already benefiting from the GAR, if the company enhances their asset share further (from estate distribution) then the GAR would be applied to an even bigger fund.

However, it could crystallise any losses that had taken place, meaning if markets
reverted then losses would be maintained…
… and reduce the potential for future returns

Thanks

Think about this as if the company had kept the risky assets then they would have benefited from any recovery of the market.