Asset Share

Discussion in 'SA2' started by ?????, Apr 22, 2009.

  1. ?????

    ????? Member

    Does the current asset share on a with-profits policy need to be large enough to support the PV of reversionary bonuses that have already been given, or also future reversionary bonuses that have not been declared yet?

    In the example above, the notes sometimes refer to future reversionary bonuses, but I'm guessing that that just means future bonuses that have already been attached and not bonuses that haven't been declared yet?
     
    ?????, Apr 22, 2009
    #1
  2. Lynn Birchall

    Lynn Birchall ActEd Tutor Staff Member

    Hi

    We're normally looking at supporting future bonuses that haven't been declared yet.

    We compare asset share with a gross premium valuation of the policy benefits. If we use fully realistic assumptions for the gross premium side of this equation, then we're looking for the asset share to support all future bonuses. If we use more prudent assumptions, and in particular a lower investment return, then we may just look for asset share to support future reversionary bonuses (and intend that the excess of actual over assumed investment return would provide some terminal bonus).

    Best wishes
    Lynn
     
    Lynn Birchall, Apr 22, 2009
    #2
  3. ?????

    ????? Member

    Thanks.

    When one compares a realistic GPV to the current asset share, then how can an excess be comparable to future bonuses that haven't been declared yet:

    The current asset share only incorporates bonus loadings in premiums that have been paid so far. So how can that be supportable of the loadings that come through in future premiums? Say each year a reversionary bonus of 10 gets declared. After 5 years the attaching bonuses are 50, which have been built up from bonus loadings in premiums/surpluses in years 1 to 5. If the policy matures after 10 years, one could expect another 50 worth of bonuses. Ignoring discounting, the PV of the total bonuses is 100, but the asset share at the current time only incorporates 50 worth of bonus loading?

    Sorry, I think I'm missing the point on this completely.
     
    ?????, Apr 22, 2009
    #3
  4. Lynn Birchall

    Lynn Birchall ActEd Tutor Staff Member

    Hi. Hopefully this will help.....

    Don't forget the GPV will look something like

    GPV = Value (Benefits) + Value (future expenses) - Value (future premiums)

    In a bonus earning investigation we might compare this GPV with the asset share. So this is equivalent to comparing:

    Value (Benefits) + Value (future expenses)

    to

    Asset share + Value (future premiums)

    So, in terms of your example, we want all the bonuses (both those declared to date plus future) in the benefits as we've got all the bonus loadings (the 50 in the asset share and the 50 in future premiums) on the right hand side.

    Cheers
    Lynn
     
    Last edited: Apr 22, 2009
    Lynn Birchall, Apr 22, 2009
    #4
  5. ?????

    ????? Member

    Duh - thanks so much! :)
     
    ?????, Apr 22, 2009
    #5

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