• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

EV calc and shareholder's share of profit

smSA2

Keen member
In April 2001, Paper 2 Question 1 (iii) asks to describe how would you calculate EV of a company called CoC. CoC has been put up for sale and it is an overseas subsidiary of another UK company. CoC sells with and without profits business and all surpluses are distributed in the ratio 80:20.

In the examiners' report it is written in the solution 'The shareholder's share of profit is 25% of the cost of bonus. Net down for taxation on shareholder profits'. I do not understand:
(a) why the shareholder's share of profit would be 25% of the cost of bonus?
(b) What is cost of bonus? Is it the discounted present value of future expected bonuses?
 
Hi

1.the cost of bonus is the additional reserve the insurer has to hold as a result of declaring a bonus to policyholders.

In an 80:20 profit share between phs and shs, shs are entitled to 20 of every 80 declared to phs or 20/80 = 25%.

2. Yes although the cost of bonus would be determined on the statutory valuation basis
 
Back
Top