Question 20.3 [SA F102] in the notes: Why is the premium rate not crucial to competitiveness for UK-style With-profits? Part of the solution is: "However, there are two ways in which the premium rate (that is, the level of guaranteed sum assured relative to the premium) can have an effect on the final maturity payout. First is that, with a higher sum assured, the death benefit at early durations will be higher. Hence the asset share will grow less quickly, as more is paid out on death, which means that the maturity amount should be lower. This actually leads to an inverse relation between the maturity proceeds and the guaranteed sum assured: the higher the guaranteed sum assured, the lower the maturity benefits are likely to be" My question is on the bold part: I understand that the asset share will grow less quickly if you have a higher sum assured. Why does the solution go to say that the maturity amount should be lower as more is paid out on death?
Hi James If more is paid out on death then the asset share will be charged more for the cost of life cover and so the asset share will be lower. As the (smoothed) asset share is paid out at maturity then the maturity benefit will be lower. Best wishes Mark