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Flashcards in WP Management - Asset Shares Deck (16):

What are the main uses of asset shares? (7)

1. maturity/surrender values
2. TCF showing
3. mvr
4. level of RB
5. smoothing maturity values
6. determining wpbr in RBS but also FPRL as used for payouts
7. base asset share used as guide to meet PRE


What is a general formula for asset shares?

- deductions (expenses+commission+cost of providing guarantees and options and life cover + SHT + cost of capital + charge for smoothing/g's/o's)
+ allocated misc profits (Surrender profit+non-par profit+tax gains)
- tax
+ enhancements from estate

Note misc profits may be +ve or -ve


How is profit from the difference between maturity payouts and asset share handled?

it's distributed to the estate, a loss is taken from the estate (it's smoothing)


How is investment return handled in the asset share?

Everything is increase by appropriate investment return


What does the EBR depend on?

solvency of fund
level of guarantees


what are the 5 methods of calculating investment return on asset share?

1. return on assets notionally allocated to business or specific product lines within the wp business
2. notional returns with notional asset mix and returns on indices
3. overall return on non-linked assets in fund
4. combination of above
5. managed fund approach - each policy invested pro-rata in fund that backs the with-profits business (used most)


Surrender profits - how are they calculated/allocated/methods of allocation

Calculated as target % of asset share
Allocate as increase to AS or inherited estate

Method 1:
Accumulate asset shares allowing for surrender profits on the cohort
Method 2:
Increase the investment return to reflect the surrender profits therefore spreading over wider range of policies/products


How are non-part profits allocation to with-profits?

% addition to asset shares or explicit addition to assumed investment return


How might you split past expenses to be charged in deductions to asset share?



What does DAC do?

Allow deferral of tax relief on acquisition expenses spread over 7 years


How are shareholder transfers usually calculated? Where are these deductions made?

90/10 basis.
usually 1/9th of cost of bonus on supervisory valuation basis (not 1/10th!)
Deductions are made from the asset share
ie. pay out bonus of 90, then take 10 from asset share


What guarantees might you make charges to asset share for?

cost of providing gtees
cost of smoothing
cost of building up capital base
cost of providing appropriate return on capital writing contract


What are the 3 mthods to calculate asset shares for unitised wp? give 1 line on each

Retro accumulation using actual expenses - actual expenses deducted from AS (like CWP) rather than charges loaded to premiums
Retro accumulation using product charges - usually in a 0:100 fund
Shadow fund - instead of accumulating AS at bonus rates, it uses actual investment return earned on assets, easier to apply than others


What is base asset share and why would it be used?

The asset share without misc profits and deductions for charges on guarantees/smoothing/CoC
Used to find companies reliance on misc profits (unpredictable in future or non-existent) by AS-Base AS


Where would the company philosophy and method of AS calculation be found?

Within company
Promotional material


What parts of TCF should be thought about when coming up with AS method/philosophy?

1. Charges to WP funds
2. Basis on writing NB
3. SV approach to be in interests of remaining/departing policyholders
4. Target ranges specified in PPFM of payouts