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Ch-07 Practical Questions

R

Rajat Mittal

Member
There is a point regarding profit distribution and investment strategies for Additions to benefit method used:

The company would aim to achieve broad equity of profit distribution compared with other cohorts/tranches of with profit policyholder.

Does it mean that company will try to smooth out profit distribution between different cohorts so that all with profit policies under company will declare almost same level of bonus?

Can you please explain it
 
Hi Rajat

That's exactly right. Broad equity means that the insurer will smooth the bonuses between different cohorts. So it is very common that a company using the addition to benefits method would declare a reversionary bonus of say 2% on all its contracts, regardless of their duration, term, policyholder age etc (although pensions contracts tend to have higher bonuses than other contracts due to their tax free status).

In contrast, the contribution method usually leads to different bonuses/dividends for different cohorts. So some groups might get 2%, while others get 3%.

Best wishes

Mark
 
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