Hi, In the solutions for this question, it mentions that since it is a proprietary company, the deferment of the declaration of bonuses means the transfer of profits to shareholders will also be delayed. Is this because of the risk of paying out dividends now and then not being able to meet expected bonuses in the future? Thanks in advance
With-profits bonuses and shareholder dividends are mechanisms by which the company's profits are distributed. It's common, for example, to have a "90:10" with-profits fund where 90% of profits go to the policyholders and 10% go to the shareholders. There would be serious complaints if the shareholders were paid dividends and nothing was given to the with-profits policyholders, and vice versa. Therefore, deferred bonus declaration would also result is delayed dividends to shareholders. Hope that helps.