April 2019 AS WP

[Twinan]

Q2part 7
death claim 60% higher than asset share in with-profit business. More being paid out pn death than maturity and surrender. Likely due to gurantees biting or approach taken to allocate bonus. Example, absolute terminal bonuses maybe same as for maturities of same duration, which are likely to have higher asset shares.

Help me understand this example.

 

[Em Francis]

Consider:
a 10-year endowment assurance with sum assured of X and premium P1
a 20-year endowment assurance with sum assured of X and premium P2.
P1 could be roughly twice the size of P2 (as the policyholder only pays 10 of them and not 20).
If the policyholder with the 20-year endowment assurance dies after 10 years and receives the same terminal bonus as a 10-year maturity endowment assurance for the same sum assured, they would get more than their asset share because the terminal bonus would be based on the higher premiums.

 

[Twinan]

Thanks Em. I’m guessing the example taken above talks about the ‘approach for bonus allocation’.

PH with policy 1 at end of contract (maturity) will have higher asset share as premium paid higher. At maturity, PH gets Y% of X as terminal bonus (ignoring any RBs).

However, if PH with policy 2 dies at same time (10th year) and gets terminal bonus of Y% of X, then first PH is at a disadvantage.

Hence this is how the death claims could be higher than their asset shares if final TB is same as for maturities of the same duration. Where maturities would have higher AS.

Is that correct?

 

[Em Francis]

Thanks Em. I’m guessing the example taken above talks about the ‘approach for bonus allocation’.

PH with policy 1 at end of contract (maturity) will have higher asset share as premium paid higher. At maturity, PH gets Y% of X as terminal bonus (ignoring any RBs).

However, if PH with policy 2 dies at same time (10th year) and gets terminal bonus of Y% of X, then first PH is at a disadvantage.

Hence this is how the death claims could be higher than their asset shares if final TB is same as for maturities of the same duration. Where maturities would have higher AS.

Is that correct?

Yes