Cost of Bonus

Hi,

I always see in the notes that for WP policies, shareholder transfer is calculated as 1/9 of cost of bonus on statutory valuation basis.

May I know what the statutory valuation basis means in this context?

To calculate SH transfers, I would value the future RB by discount with RDR. But I don't see a link with the statutory valuation basis.

 

The discounting is done using the Peak 1 statutory valuation basis, not an RDR.

The idea is that we're trying to work out the cost to the free assets of declaring a bonus, ie the increase in Peak 1 reserves.

 

Hi Mike,

Thanks for the reply.

One more question, to calculate EV for the company, do we value the transfer using RDR? A bit confused on both basis.

Thanks

 

Yes, EV discounting uses an RDR, which could be the risk-free rate if it's an MCEV