Hi, I am struggling to understand the asset shares when it comes to a death benefit being paid out. When a policy withdraws and their asset share is negative, the insurer makes a loss because some expenses hasn’t been recouped etc (this is NBS right). Now for an endowment assurance for example, if my asset share builds up to maturity and the guarantee is less than the asset share, then it will result in a profit and that profit is transferred to shareholder or other with profit policyholders right? So what happens if policyholder dies during the term and the death benefit is < asset share? Wouldn’t that be considered a loss too even if the asset share is positive?
Hi Y Chen Yes, when a policy lapses when the asset share is negative then the insurer makes a loss. This can happen in the early stages of the policy if initial expenses are large compared to the premiums and investment return to date. (This is not quite the same as new business strain which occurs when the first premium isn't large enough to cover the initial expenses and initial reserve.) Yes, if the maturity payment is less than the asset share then the insurer makes a profit and this goes to the shareholders and/or with-profits policyholders depending on the structure of the business. If the death benefit is less than the asset share then this results in a profit for the insurer in exactly the same way as the maturity benefit above. Best wishes Mark
Hi Mark Thank you for your response. Just a follow up question as I realized I was meant to say the case where death benefit > asset share during the term of policy and asset share is positive - is that a loss to the insurer or profit?
Hi Y Chen The asset share is the money the insurer has accumulated on the contract allowing for all cashflows. So if it pays out more than asset share it has made a loss (regardless of the circumstances). So yes, if death benefit is greater than asset share it is a loss. Best wishes Mark
