Undistributed surplus vs. inherited estate

[Benjamin]

Hi,

Ref 1: CMP, Ch15, page 9
Ref 2: Flashcard Ch15, card 8

The core reading defines inherited estate as: "the existence of capital within the with-profits fund that has arisen from under-distribution to past generations of policyholders, often referred to as the “inherited estate”..."
The flash card defines the inherited estate as "...the excess of the realistic value of the fund's assets over the realistic value of its liabilities."

I would have thought realistic A-L should be broken down into:
- Undistributed surplus, which relates to current policyholders and would be assets shares less distributions thus far (and would therefore expect it to approximately level after allocating a terminal bonus).
- Inherited estate, which arises from having distributed less than unsmoothed asset to previous policyholders, who are no longer on the books (and thus this is surplus permanently banked to the company in respect of the individual policy).

...and thus inherited estate be defined per the core reading.

Could you clarify please?

 

[Mark Willder]

Hi,

Ref 1: CMP, Ch15, page 9
Ref 2: Flashcard Ch15, card 8

The core reading defines inherited estate as: "the existence of capital within the with-profits fund that has arisen from under-distribution to past generations of policyholders, often referred to as the “inherited estate”..."
The flash card defines the inherited estate as "...the excess of the realistic value of the fund's assets over the realistic value of its liabilities."

I would have thought realistic A-L should be broken down into:
- Undistributed surplus, which relates to current policyholders and would be assets shares less distributions thus far (and would therefore expect it to approximately level after allocating a terminal bonus).
- Inherited estate, which arises from having distributed less than unsmoothed asset to previous policyholders, who are no longer on the books (and thus this is surplus permanently banked to the company in respect of the individual policy).

...and thus inherited estate be defined per the core reading.

Could you clarify please?

Different companies define estate in different ways. All of the above definitions you mention above are used in practice.

Best wishes

Mark