CMP Chapters 5 to 7

Chapter 5, Page 3
“Deductions include: … the cost of providing all benefits in excess of asset share, on a smoothed rather than current cost basis.”
 What do smoothed basis and current cost basis mean here?

Chapter 6, Page 13
“Policy can be described as having a readily identifiable current benefit”
 What does this phrase mean here?
“Unitised with profits contracts”
 What does it mean? Is it where premium and benefits are stated in terms of units, rather than monetary terms?

Chapter 6, Page 16
“Premiums may be paid as single lump sum, recurring lump sum.”
 What does recurring lump sum and single lump sum mean?

Chapter 6, Page 17
“Charging structures may be a combination of Policy charge, …, charge for risk benefits.”
 How does policy charge differ from charge for risk benefits.

Chapter 7, Page 8
“Conversion to paid-up benefit is calculated on valuation basis.”
 Why?

Chapter 7, Page 16
What is the similarity between accumulating with-profits and contribution method dividends? What is the “current cash value” about?

Thanks!

 

Current cost just means actual year by year cost. If looking at small groups of policies this might be volatile and so you might smooth the cost from year to year.

Readily identifiable means you can see easily what the policy is worth today. Units isn't the key, if it was a monetary amount instead of a unit value you could still see it, if it was a UWP contract.

Lump sum just means single premium

A policy charge would usually be justified to pay for expenses of administering the policy. Charge for risk benefits is to cover life cover, say.

Valuation basis: the sentence in brackets says why. It avoids a change in the reserve.

Last point - both are looking at paying a bonus in present value terms. One in terms of cash, and one by increasing the current 'fund value'.

 

CMP Chapter 6

Thanks very much for the clarification!

May I know what is the difference between single premium, recurrent single premium and regular premium?

Thanks again!

 

SP = one-foff premium
RP = regular contractual premiums (eg annually)

Recurrent SP: repeated single premiums, but probably not contractual, so more flexible than RP. Might be a yearly renewable contract.