I have 2 questions below on the terminology used thought the notes to refer to splits of surplus in WP funds. When referring to surplus distribution on CWP business the notes frequently show 90/10 splits. My understanding is that this refers to the split Policyholder/Shareholder. When talking about UWP a possible fund structure is 0/100, in this case I assume surplus must be defined in a different way than for CWP i.e. to exclude investment surplus (which the ph will get) and all the non investment profits accrue to the estate or to the shareholders which is what is referred to by the 100 in the above equation. Is there a bit of a grey area then when talking about 90/10 structures on UWP funds?, i.e. what is the actual definition of surplus and does it include investment or not or is it the case that when talking about any split other than 0/100 for UWP you assume the surplus includes the non investment surplus? Following on with the above logic I get to chapter 26. In chapter 26 section 3.6 there is a reference in the acted section of the notes to the split of surplus for new style with profits with a fund structure 100/0 where ph receive all the investment surplus. I would have expected this to read 0/100 similar to my example for UWP above. Why is the 100 here at the other side of the equation? Many thanks for your help.
My current interpretation is: Surplus will be defined by the PPFM and could have numerous definitions. However, in the UK we can make the assumption that in a 90:10 fund that all surplus is distributed between the PH and SH by this proportion and that in 0:100 funds SH get all surplus except that from investment. I believe the 100:0 is saying that the policy will operate much more like a UL policy where there are effectively two funds. The "unit fund" which is 100:0 where PH will get all the investment surplus subject to smoothing and the "non-unit fund" which is 0:100 where SH get all surplus and is funded from the "unit fund" by using the explicit charging structure.
