Document ID: chunk:federal_register_of_legislation:F2023L00694:body:0:p11
Version: federal_register_of_legislation:F2023L00694
Segment Type: other
Provision Reference: 
Character Range: 27508–30524

value of declared bonuses and shareholder transfers out of the fund which are distributions of retained profits (inclusive of the operating profit allocated in the period). It is the operating profit which is the amount allocated between policy owners retained profits and shareholders' retained profits; and
(b)          operating profit includes shareholder profit and policy owner profit. It comprises:
(i)            the value of current period best estimate bonuses (including best estimate interim and terminal bonuses and the value of best estimate reversionary bonuses) and best estimate shareholder profits; and
(ii)         non-investment experience profit.
57.         It is noted that the recalculation methodology means a change in assumptions (predominantly non-investment assumptions) may affect current year profit, through changes in the rate of best estimate bonus.
Recalculation of future profits
58.         A recalculation of expected future profits at the reporting date must be carried out as follows:
(a)          derive the value of expected future policy owner and shareholder profits at the reporting date as:
(i)            the value of supporting assets;
(ii)         less the best estimate liability;
(iii)       less the value of current period bonuses and shareholder profits
(b)          where:
(i)            value of supporting assets is calculated according to paragraphs 59 to 60;
(ii)         value of current period bonuses is determined as the cost of bonus according to paragraphs 61 to 63; and
(iii)       the relationship between bonuses and shareholder profits must be in accordance with paragraph 45.
Value of supporting assets
59.         The value of supporting assets is determined as:
(a)          the policy liability at the end of the previous reporting period;
(b)          plus the cost of declared bonuses at the end of the previous period;
(c)          plus the actual policy related cash flows and investment experience as reported in the regulatory financial statements;
(d)          less the expected shareholder profits emerging over the period (in respect of interim and terminal bonuses) and the non-investment experience profit.
60.         The value of supporting assets must be calculated so as to attribute no value of assets to terminated benefits.
Cost of bonus
61.         The cost of bonus at the reporting date (whether best estimate or declared) must reflect the cash value to the policy owners of those bonuses at the reporting date.
62.         Where bonus at the reporting date does not acquire an immediate cash value, but rather value vests in the policy owner over some defined period of time, the life company, in determining the cost of bonus, must allow an appropriate value for that unvested bonus.
63.         Terminal bonus is included in the calculation of cost of bonus to the extent it is immediately vested in the policy owner and is guaranteed.

Loss recognition
64.         Where at a reporting date the value of future profits