Studies of Reversionary Bonus Using a Model Office

Abstract

SynopsisThe paper is the result of work carried out by the authors as members of the Bonus Research Group of the Faculty of Actuaries. The authors designed a computer model of a life office in order to examine the emergence of reversionary bonus under differing conditions. The use of a computer model enabled a dynamic study to be made over many years. The investigations quantified the extent to which the reversionary bonus emerging was affected by the valuation basis, the rate of expansion of the office, the rate of return on the fund, the extent of investment in equities and the office's experience in respect of expenses, withdrawals and mortality. The authors also examined in quantitative terms the extent to which policies would, on the assumptions made, receive more or less than the full share of surplus to which they were entitled as well as examining the size of the valuation estate under differing conditions.