G
gruhaa
Member
Hi
Please I need a confirmation on my understanding on cost of guarantee and smoothing:
Suppose, in YE 2017, guaranteed benefit for a policy is 107(basic sum assured plus declared RB) and asset share as on YE 17 is 100(guarantee biting may be due to asset share has fallen during 2016-17). the policy is due to mature next year(and thus there is no other decrement, ignoring death).
If company expect to earn 5% investment return and smoothing payout policy is say 1% of YE17 asset share( £1) which makes unsmooth earned asset share to 105 but payout to 106.
Thus, at YE18, it is expected that
Guarantee benefit: 107
Smooth AS:106
Unsmooth AS: 105
Assuming 0 TB is acceptable
Then, should be I correct in saying that there will be no cost of smoothing and £2(107 - 105) is cost of guarantee?
If smoothing policy were such that smooth asset share would be 109 and thus payout will be 109 then 109 minus 107 would be cost of smoothing? Can I also say that 2/107 is the TB rate declared by the company during 2017-18?
Please I need a confirmation on my understanding on cost of guarantee and smoothing:
Suppose, in YE 2017, guaranteed benefit for a policy is 107(basic sum assured plus declared RB) and asset share as on YE 17 is 100(guarantee biting may be due to asset share has fallen during 2016-17). the policy is due to mature next year(and thus there is no other decrement, ignoring death).
If company expect to earn 5% investment return and smoothing payout policy is say 1% of YE17 asset share( £1) which makes unsmooth earned asset share to 105 but payout to 106.
Thus, at YE18, it is expected that
Guarantee benefit: 107
Smooth AS:106
Unsmooth AS: 105
Assuming 0 TB is acceptable
Then, should be I correct in saying that there will be no cost of smoothing and £2(107 - 105) is cost of guarantee?
If smoothing policy were such that smooth asset share would be 109 and thus payout will be 109 then 109 minus 107 would be cost of smoothing? Can I also say that 2/107 is the TB rate declared by the company during 2017-18?