With profits funds

[TanishaS]

Hi,
If the company wants to increase the available capital would increasing the premium on new business and reducing the level of new business written help?

Thanks

 

[TanishaS]

As an additional question would deferring the distribution by reducing the reversionary bonus and increasing the terminal bonus help to increase the additional available capital?

 

[Lindsay Smitherman]

Hi,
If the company wants to increase the available capital would increasing the premium on new business and reducing the level of new business written help?

Thanks

Based on the title of this thread, I presume you are talking about writing new business into a with-profits fund?

Increasing premiums on with-profits business: no. Basics of WP = premiums go into the asset share, not the estate. [If you meant increasing the premium on without-profits business written in the WP fund, then this could generate higher profits on that business - but that would also likely be added into asset shares.] If talking about conventional WP business, then increasing premiums but leaving sum assured the same would result in a higher ratio of asset share to guaranteed benefit, hence a lower cost of guarantee, but this is fairly second order.

Reducing the level of new business written: possibly in the short-term, but would depend on how 'liabilities' were defined and the way in which charges are taken from asset shares; would not seem to be a long-term solution (eg would save having to set up initial liabilities for cost of guarantees, but then would not benefit from charges taken from asset shares to cover such costs)

 

[Lindsay Smitherman]

As an additional question would deferring the distribution by reducing the reversionary bonus and increasing the terminal bonus help to increase the additional available capital?

Yes. Lower RB -> slower build-up of guarantees -> lower cost of guarantees -> lower liabilities (if these are defined to include a cost of guarantees component)