apr 2014 q1 vii

Discussion in 'SA2' started by dimitris13, Sep 15, 2019.

  1. dimitris13

    dimitris13 Member

    hi,
    it says in the solutions that for wl setting as=db may not be appropriate bc of certain reasons that are understandable.
    however the same reasons can be applied to endowment . is that right? bc if they are right then we could argue in favour of changing it for example.
    am i missing sth?

    thanks
     
  2. Em Francis

    Em Francis ActEd Tutor Staff Member

    Hi
    Payouts on endowments on not just based on asset share:
    To determine reversionary bonuses for endowments, often realistic future experience is equated to the present value of benefits (including future bonus) and expenses less future premiums, with the retrospective earned asset share. When setting the reversionary bonuses the company would possibly make a conservative assumption about early deaths and low investment return so as to mitigate the risk of paying out too much on early deaths. Terminal bonuses are then calculated by comparing asset share and existing sum assured and reversionary bonus at maturity.
    These calculations are difficult to carry out for whole life because of the longer durations and the fact that there is no set maturity date; terminal bonuses are only given on death. In practice terminal bonuses are set at the rate which would apply for an endowment policy which had started at the same time as the whole life policy and matured at the date of death. As the company has stopped writing the former, the question is looking for alternative methods.
    Hope this helps.
    Thanks
    Em
     

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