The point in the solution in ASET I don't quite understand it about how as this is a without profit contract, the terms offered to surrending policyholders do not directly affect the continuing policyholders. Is it because that there is no profit sharing in this arrangement?
Hi Yes, that's right. For with-profits business, if a company pays other than asset share (on average) on surrender, the difference between surrender values paid and the asset shares on those policies would be added to (if a profit) or deducted from (if a loss) the asset shares of the remaining policies - as mentioned in Chapter 5. However, for conventional without-profits business any such surrender profits/losses would accrue to shareholders, since the basic (death and maturity) benefits to policyholders are fixed.
