Hi In Q-1 iii),Could someone pls explain under the Without Profit business heading-," It is also more likely that the company would want to write without profits business solely for the benefit of shareholders. As a result, this approach is unlikely to be acceptable to shareholders. It would likely be acceptable to policyholders if they are expected to benefit from profits." Why would this approach be not acceptable for shareholders and acceptable for policyholders? Not very clear. Thanks in advance.
The context of this quote is assessing the suitability of a suggestion to improve the capital position of the insurer's with-profits (WP) fund by writing profitable without-profits business into that fund (with the PV of future profits on that business then increasing available capital). It is a 90:10 WP fund, so this suggestion would be good for the WP p/hs as they would gain from 90% of the profits arising on that business. However, the shareholders would only receive 10% of the profits on that business. They might therefore prefer new without-profits business to be written outside the 90:10 fund, within a 100% shareholder-owned fund, so that they would gain 100% of those profits.
