Hello, Looking for a clarification about 'benefits' being a deduction while calculating asset shares. Cost of benefit= cost of providing guarantees with respect to benefit which is same as benefit in excess of asset share. For example, if sum assured is 10,000 and asset share at the time of claim is 9000. Now, the difference of 1000 will be deducted from asset share as it is the cost of benefit. After this deduction and other additions/deductions from asset share, say asset share = (9000-1000-800)=7200 (assuming net deductions after cost of benefit= 800). Terminal bonus on this policy (assuming its a with profits policy) will be calculated assuming asset share = 7200. Is my understanding correct? Thank you!
I think you are getting confused here between several different things. If we are doing an aggregate asset share calculation, we would deduct the overall cost of providing benefits within the portfolio on a regular basis. If we are doing an individual asset share calculation, as is suggested by what you are doing, then for each period over which the asset share is determined, we would typically deduct a charge that reflects the cost to that individual policy of any guaranteed benefits provided in excess of asset share. For any death benefits that are provided over and above asset share, we would likely deduct the cost of having provided that death cover over that period (for example determined as mortality rate x {death benefit - asset share}). You seem to be deducting the cost of guarantee from the asset share at the time of claim, which doesn't make sense. If the claim is a contractual one (death or maturity), given that the guaranteed benefit is 10,000 and the asset share is 9,000, then the payout would simply be 10,000 - because the guarantee is biting. If it is a surrender, the payout would probably be 9,000 (the asset share). If the policy was remaining in force, then it would likely have a deduction made from asset share over the coming year of 1,000 multiplied by qx (to reflect the cost of providing the excess death benefit over that period) and possibly a further deduction to charge for the possibility of the guarantee also biting at maturity. You might benefit from revising asset shares from Subject SP2?
