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Oct 2012 qn 1vi

A

ALEX_AK

Member
Hello for opt b, it mentioned that it will base the COG on all RB declared to date. Can I understand what is the definition of COG here? Is it,
Cost of gua = value of total declared bonus - asset share

(here I ignore initial SA?)

Since,
AS is the accumulated profit and
total rb declared to date is the distributed profit to date
 
The guarantee is that the guaranteed benefits will be paid in the event of a contractual claim, regardless of whether they're covered by the asset share at that point.

So, the cost of this guarantee is the expected present value of the shortfall, which is being determined stochastically. The idea is to consider the cost of making up the future shortfall that may arise (1) below the current guarantees including the current declaration and (2) below the current guarantees excluding the current declaration.

The current guarantees include the initial sum assured in both cases.
 
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