Hi All, Can somebody please explain why is this so that in individual asset share calculations we deduct death benefits in excess of the asset share while in aggregate asset share calculations we deduct the full death benefit sum assured? and how this is related to statement " possibly on a smoothed, rather than current cost,basis"? Regards, Rajat Gupta
Hello Rajat When we calculate an aggregate asset share we look at the cashflows for the whole cohort of policies, so we deduct the full sum assured on death. The amount of assets we have has reduced by the sum assured. When we calculate an individual asset share we must share any losses over the remaining policyholders. The policyholder who has died will have received the full sum assured, but they will also have had their own asset share to cover part of this cost. So the cost of the death benefit to the survivors is the sum assured less the asset share of the policyholder that has died. We often calculate asset shares for homogeneous groups of policyholders, eg we might calculate asset shares separately for 40 year olds than 41 year olds. However, if we used actual mortality experience, we might end up with very uneven asset shares across ages. By chance, their might be twice as many deaths for 40 year olds than for 41 year olds, just because we have few deaths in each cohort and so statistical variation can be large. To avoid this we might smooth the mortality experience, perhaps by using the number of deaths based on an adjustment to a mortality table rather than the actual deaths. I hope this helps to clarify how mortality affects asset shares. Best wishes Mark
