CMP Q 20.3 (ii)"As always in the bonus declaration, the marketplace must be considered. If other companies are reducing bonuses, this company may feel it appropriate to do so too even if it is not required to (ie because it is in a stronger position)." Isn't it against the PRE & TCF requirements? If insurer is not impacted by the market downfall then they should not follow their competitor's bonus reduction. CMP Q 20.3 (i) Is my understanding below regarding the BEC is correct? The bonus earning capacity (BEC) exercise is performed for future years assuming the current actual earned investment return on real-world assumption and decides the RB & TB bonuses between various policy cohorts. While doing this exercise do we also tweak their future expected returns by varying their volatility to get realistic future cashflows? and then for a check, we compare its future projected earned asset share against its gross premium valuation (GPV) using the future calculated bonus rates, as they both should be closer ? If this is true then the future bonus rate should also be changed as per the new investment returns?
Hi For (ii), it's not saying he insurer is not impacted by the market downfall. The equity market fall in the question would have impacted the insurer. It could therefore be considered fair and in line with PRE/TCF if bonus rates were reduced. However, a company may not be required / forced to reduce bonus rates if it has a really strong capital position for example, although it do so. As ever with WP, it's about balancing various factors. For (i), bonus earning capacity investigations can be performed in different ways by different companies, so I wouldn't be too prescriptive about precise method and assumptions. Broadly though the comparison would be between a gross premium valuation and a current (rather than projected) asset share.
