Hi, In X3 assignment, Question 1 iv) b) The solution mentions that a statement could be issued to shareholders, explaining the rationale of this change and the resulting benefits to them. As shareholders receive 10% of profits transferred to with profit policyholders, it is important to let them know that bonus rates are expected to reduce due to low risk portfolio. Practically speaking, how is profit transferred to shareholders? Is it a direct payout? Is it paid as and when bonus is declared to with profit policyholders and profit is realized on without profit policyholders? Now, my understanding of shareholder fund is that it is the excess of assets required to meet policy liabilities. This overlaps with the definition of own funds. Is my understanding correct? Or is the shareholder fund excess of assets over liabilities and capital requirement i.e free assets?
As an example, in a 90:10 fund under the 'additions to benefits' method, profit transfers to the shareholders are made in the form of 1/9 of cost of bonus - so are triggered whenever a reversionary bonus is declared or a terminal bonus is paid. These shareholder transfers go out of the with-profits fund and into the 'shareholder fund', where they accumulate until such time as the company decides to use them to pay a dividend out to the shareholders. As is described in Chapter 18, profit on without-profits business written within the with-profits fund is added into asset shares. This means that these profits come through ultimately as bonus. So they don't directly generate a shareholder transfer in their own right, but do contribute to shareholder transfers through the normal bonus mechanism. The rest of your post indicates confusion with what is meant by the 'shareholder fund'. See my answer to your other post here: https://www.acted.co.uk/forums/inde...erm-insurance-fund-and-shareholder-fund.3937/
