Hi All, I have a query on calculating of "Present value of future shareholder profits in case of With Profits business". Core reading says that it is calculated as present value of future shareholder transfers where shareholder transfers are calculated as either:- (i) as a proportion of the cost of bonus (90/10) in bonus declarations and net assets. (ii) as a charge deducted from the asset share. Here I can understand approach (i) for calculating shareholder transfers but not approach (ii) "as a charge deducted from the asset share". Can somebody please explain more on this approach? Thanks in advance!
Hello Rajat Method (ii) is particularly common for unitised with-profits (UWP) contracts. Some companies run UWP in a similar way to unit-linked business. Each month charges are deducted to cover expenses and death benefits. The shareholders then make a profit if the charges are greater than the expenses and claims. The UWP policyholders in this case are entitled to all the investment profits (subject to smoothing). I hope this helps. Best wishes Mark