Securities Commission - Discussion on Life Insurance and Law Practices

PART II - LIFE INDUSTRY LAW AND PRACTICES

Main Contents
Glossary
Part I - Background
Part II - Life Industry Law and Practices
Part III - Public Policy Discussion
Appendices

DETERMINING THE RETURNS TO POLICYHOLDERS

Determining the returns to policyholders
The allocation of profits between policyholders and shareholders
Minimum surrender values for life insurance contracts
Comment

DETERMINING THE RETURNS TO POLICYHOLDERS

8.1
There are a number of factors which bear on the returns policyholders are likely to receive from their investments in life insurance policies. These factors include:

the returns received by the life insurance company on its asset portfolio;
the company's level of expenses and the mechanisms used (fees, charges, pricing spreads) used to apply these costs to policyholders;
in the case of with-profits policies, the division of profits between shareholders and policyholders; and
the form of contractual arrangement between the company and the policyholder (with-profits, non-participating, capital stable, investment linked).

8.2
In this section of the paper we will look at life companies' practices for the allocation of profits between shareholders and participating policyholders, and at the extent to which minimum surrender values are protected for the benefit of policyholders.

The allocation of profits between policyholders and shareholders

Our experience of New Zealand life industry practice

8.3
From our observations the practices followed by life insurance companies in determining the allocation of profits between their current policyholders, reserves and (for proprietary companies) shareholders, vary widely.

8.4 As we noted earlier (see para 4.8) the company's actuary is required to state in the Sixth Schedule abstract the principles used to determine the split of profits between shareholders and policyholders, and the source of those principles.

8.5
We have reviewed many Sixth Schedule abstracts. These are usually expressed in the form of a recommendation by the actuary as to the amount of bonus or profit which should be applied to various classes of policy.

8.6
We have seen instances where, in the face of what appeared to be very small profit allocations to policyholders compared to the profit attributed to shareholders, the actuary indicated he would support a higher allocation of profits to policyholders should the company feel disposed to make such an allocation (which it did not).

8.7
In one instance a proprietary company reported a significant profit arising from the public flotation of one of its long-held investments. The company subsequently paid a substantial dividend to its parent. In the same year no reversionary bonuses were allocated to with-profit whole of life and endowment policies.

8.8 The particular investment giving rise to the profit was shown in the company's financial statements as an investment of the company without qualification and certain contingent liabilities (guarantees given by the life insurer covering obligations of the floated company) were also shown in the company's financial statements without qualification.

8.9 In effect life insurance companies have the capacity to select after the event which particular profits arising from their business will be for the benefit of policyholders and which profits will be attributed to the shareholders. This is clearly so when the company has not disclosed the "ownership" attribution of the company's assets.

8.10 We are also aware that companies can allocate benefits to policies even though the underlying assets did not earn positive yields. Such allocations may be at the "cost" of other policyholders and/or of the shareholders.

Factors in determining the allocation of profits between policyholders and shareholders

8.11 There are no effective rules of law in New Zealand governing the splitting of profits between current policyholders, shareholders and reserves in a life insurance company with participating policies.

8.12 In mutual companies the issue is one of how much profit to transfer to or from reserves and how much to allocate to policyholders in any given year. In the case of proprietary companies it is also necessary to allocate profits between participating policyholders and shareholders.

8.13 We expect profit allocation decisions are based on a variety of factors including current and expected profitability of the asset portfolio, indications given to policyholders at the time policies were sold, comparable market performance, the interests of the shareholders of the company, and the need to service shareholders' funds.

8.14 The role of the actuary in the profit allocation process is unclear. As we noted earlier (see para 4.8) the actuary is required to prepare a report on the financial condition of the company each year. That report is required to state the principles on which the distribution of profits was made. However the actuary is not required to state, for example, if the distribution appears fair or equitable as between classes of policyholders or as between shareholders and policyholders (although the actuary may choose to do so).

8.15 The actuary is appointed by the company and owes a duty of care to the company. There is not an explicit duty of care towards, or mandate to act for, or in the interests of, a company's policyholders. Many actuaries are employees of the life insurance companies they are reporting on. Some actuaries are directors of the companies they are reporting on. In other instances consulting actuaries are appointed by the directors of the company to report on the company's financial position. There would appear to be important conflict of interest questions for actuaries who undertake section 18 investigations, questions which, as far as we know, are not addressed by formal industry guidance.

8.16 There is no existing opportunity, either in the law or in the conventional policies offered to the general public, for the policyholders themselves to have a say in the distribution of a company's profits between shareholders and policyholders and as between different classes of policyholders.

8.17 Mr Richardson-Hay in his paper (see para 2.19) observed:

Life offices in New Zealand have no restrictions in the following areas:

...

...

Profit sharing for with profits policyholders
The basis on which profits are shared is totally at the discretion of the life office. Policyholders are not informed of this issue. Nor [are policyholders informed] in the case of branch operations if a reduction in New Zealand funds will be required to support another part of the global fund

8.18 Until recently disclosure of the company's approach to profit allocation was a matter for promotional and contractual documentation. However life insurance companies are now⁴⁹ required to prepare investment statements.These documents have to be provided to all prospective investors andare required to include:

a brief description of the key factors that determine the returns to the policyholders;

a statement whether or not an amount of returns, quantifiable at the date of the investment statement and enforceable by subscribers, has been promised and, if so, the amount or how it is to be calculated; and with respect to the consequences of policy termination:

a brief description of the policyholders' rights to terminate or surrender the policy;

a statement of the types of charges which may be incurred in relation to the early termination of the investment;

a statement of the amount of any charges (dollar amount or percentage) which may be incurred in relation to early termination, or, if the amount or percentage cannot be described at the time the investment is made, a statement describing how the charges will be calculated.

The approach to the allocation of profits between shareholders and policyholders in Australia and the United Kingdom

8.19 As noted earlier, in Australia life insurance legislation requires life insurance business to be conducted within separate "statutory funds"(see para 6.10 onwards).

8.20
The LIA (Aust) contains detailed provisions about many facets of the operation of the statutory funds. With respect to the allocation of operating profit section 60 states that, for a statutory fund representing Australian participating business, at least 80% of the profit (or such higher percentage as may be specified in the company's articles of association) must be added to policy owners' retained profits of the statutory fund. The balance of operating profit must be treated as, or added to, shareholders' retained profits.

8.21 The Australian legislation allows for different treatment for overseas participating business. For example, there is no 80% minimum profit allocation rule. Instead, overseas participating policyholders can have any proportion of the funds' operating profit added to, or treated as, their retained profits provided the allocation would not be inconsistent with the company's articles of association. If a company's articles of association require any part of a profit representing overseas participating business to be treated as overseas policyholders' retained profits then that part of the profits must be treated as, or added to, overseas policyholders' retained profits.

8.22 With respect to the distribution of retained profits, the LIA(Aust) provides that Australian policy owners' retained profits may only be distributed to owners of Australian participating policies. However a similar provision applying to the distribution of the retained profits of overseas participating policyholders is qualified by a further provision which allows overseas policy owners' retained profits, with the approval of the Commissioner, to be transferred to owners of Australian participating policies or to shareholders' funds.

8.23 In the United Kingdom the ICA(UK) (section 30) limits the options available to a company to dispose of profits when the company has with-profits policyholders. The section appears designed to ensure an element of stability in the proportion of profits which can be distributed to policyholders from year to year. Based on the premise that with-profits policies are usually sold by the illustration of the future effects of past bonus declarations, the rule of law means that companies cannot lower the proportion of profits allocated to policyholders from one year to the next by more than 0.5 percentage points without invoking a formal procedure involving notification to the Department of Trade and Industry, publication of the intention in the London, Belfast and Edinburgh Gazettes and in specified newspapers, and delaying the allocation by almost two months from the giving of the public notice.⁵⁰

Minimum surrender values for life insurance contracts

8.24 The effect of the practices followed in the allocation of profits to participating policies is particularly evident on policy termination.

8.25 Earlier in our paper (see para 2.13 onwards) we discussed the vulnerability of New Zealand life insurance policyholders to the very wide discretion of life insurance companies to determine the surrender value of life insurance contracts. The current position in New Zealand is different from that prevailing in Australia.

Policy termination in Australia

8.26 Under sections 207 and 209 of the LIA(Aust) the LIASB is required to develop an actuarial standard related to Minimum Surrender Values and Paid Up values for life insurance policies.

8.27 In May 1997 the LIASB issued for comment draft standard 4.01 "Minimum Surrender Values and Paid-up Values". It is proposed that the standard, when formally promulgated, will apply to transactions occurring on or after 30 June 1998.

8.28
The purpose of the standard is described in the "Overview" section as being twofold:

To prescribe, for the relevant policies, the minimum amount which must be paid (provided for) by the life company when the policy owner requests that the policy be surrendered (made paid-up).

To prescribe the amount which is appropriate as the base value for the Minimum Termination Value from which the Solvency Requirement of a statutory fund is determined

8.29 The objectives in prescribing these amounts were described in the "Introduction" to the standard as:
in protecting the interests of surrendering policyholders in the situation of terminating (or making paid-up) life insurance policies prior to their full term, by providing for a minimum amount; and

in protecting the interests of remaining policyholders, by both:
- ensuring that the costs of termination are being appropriately borne by the surrendering policy owners; and

- providing a base to the value of policy liabilities which is used as a component in the determination of the Solvency Requirement for the statutory fund.

8.30
In outlining the principles underlying the standard the "Overview" included:

During the development of the Standard it was recognised that there are three broad categories of charges levied against life policies by the life company to meet its expenses and provide for its profits. This categorisation - according to the timing of application of the charges - has been adopted throughout the Standard, as:

front end charges;

ongoing charges; and

back end charges.

The most important (and variable) factors affecting the surrender value of the policy are considered [to be] the charges in respect of the establishment and termination of the policy - or the front end and back end charges.

Further, while regular product information disclosure reinforces to the policy owner the impact of ongoing charges on the in force value of their policy - the effectiveness of disclosure requirements in respect of these other charges (front end and back end charges) is arguably less.

The Standard therefore seeks to limit the adverse effects on the policy owner of excessive charges on the establishment of a policy and significant reductions in the in force value of the policy due to charges levied on termination.

8.31
The first part of the standard says:

1.1 The Minimum Surrender Value of a policy must provide a basic level of protection to the owner of the policy being surrendered, while not disadvantaging the interests of the owners of other policies within the statutory fund or those of the shareholders

8.32 The draft standard is quite detailed. It prescribes the methodology to be applied to determine the surrender values of the four major policy types. It requires that Minimum Surrender Values be provided for all policies issued after 1 July 1995 with some exceptions.⁵¹

8.33 The standard prevents ongoing charges being levied at a level exceeding that actually applied to the policy. It also provides that charges cannot exceed the level prescribed in the standard. For example, the standard prescribes a maximum administration or transaction charge in respect of a surrendered policy of A$50 (for 1998).

8.34 While the draft standard itself does not prescribe the minimum returns policyholders can expect from their policy, since these returns will obviously vary widely among different types of policy and will depend on the performance of the assets supporting those policies, the standard will require that most policies prescribe a minimum surrender value which includes all returns credited to the policyholder in relation to that policy.

8.35 The minimum surrender values become part of each company's solvency calculation.

Comment

8.36 The processes used by proprietary companies for determining the division of profits between policyholders and shareholders, and between different classes of policyholder, are generally unclear to the outside observer.

8.37 With the significant shift, as a result of demutualisation, towards life insurance business being conducted by proprietary rather than mutual life insurance companies, the issue of profit allocation between shareholders and policyholders is likely to assume greater importance in future years.

8.38 As already noted (see para 2.19), there appear to be a number of ways that a New Zealand life insurance company can adjust the return provided to policyholders, including the levying of expenses against policies, describing the procedures for determining bonuses in imprecise and obscure language in the policy documents to allow flexibility in bonus calculation, adjusting bonus declarations already made and removing expected terminal bonuses.

8.39 Where the ownership of life insurance companies or portfolios change policyholders could be adversely affected if new owners have a different investment philosophy or approach towards benefit allocation.

8.40 The introduction of the new investment statements should go some way to improving the quality of disclosures to prospective policyholders but does not affect the ability of life insurance companies to allocate benefits at their discretion.

8.41 Australia has specific rules of law concerning the allocation of life insurance profits between participating policyholders and shareholders. The United Kingdom has requirements which ensure some stability in profit allocations from year to year. There are no such rules in New Zealand.

8.42 Some New Zealand life insurance policies, generally the "capital stable" policies, have what is akin to a minimum surrender value. Under those policies there could be a promise by the life insurer to pay the policyholder a minimum amount related to the original investment or premiums paid by the policyholder. Otherwise, however, the policyholder may have no assurance as to the value of the investment at any given time.

8.43 We think there are a number of questions which need to be addressed concerning the allocation of profits between policyholders and shareholders and the possible provision of minimum surrender values for life policies. We set out these questions in the final section of the paper.

Footnotes

Because of the transitional arrangements in the Securities Amendment Act 1996 some aspects of the new law may not take effect until as late as 1 April 1998 for some companies.
To illustrate: if a company allocated 80% of profits to policyholders in one year it could not allocate less than 79.5% of profits to policyholders in the next year without following the notification procedures.
The exceptions include regular premium business in force less than three years, overseas business, and wholesale business.

Main Contents
Glossary
Part I - Background
Part II - Life Industry Law and Practices
Part III - Public Policy Discussion
Appendices
INDEX || BACK || FORWARD

DETERMINING THE RETURNS TO POLICYHOLDERS
8.1	There are a number of factors which bear on the returns policyholders are likely to receive from their investments in life insurance policies. These factors include: the returns received by the life insurance company on its asset portfolio; the company's level of expenses and the mechanisms used (fees, charges, pricing spreads) used to apply these costs to policyholders; in the case of with-profits policies, the division of profits between shareholders and policyholders; and the form of contractual arrangement between the company and the policyholder (with-profits, non-participating, capital stable, investment linked).
8.2	In this section of the paper we will look at life companies' practices for the allocation of profits between shareholders and participating policyholders, and at the extent to which minimum surrender values are protected for the benefit of policyholders.
The allocation of profits between policyholders and shareholders Our experience of New Zealand life industry practice
8.3	From our observations the practices followed by life insurance companies in determining the allocation of profits between their current policyholders, reserves and (for proprietary companies) shareholders, vary widely.
8.4	As we noted earlier (see para 4.8) the company's actuary is required to state in the Sixth Schedule abstract the principles used to determine the split of profits between shareholders and policyholders, and the source of those principles.
8.5	We have reviewed many Sixth Schedule abstracts. These are usually expressed in the form of a recommendation by the actuary as to the amount of bonus or profit which should be applied to various classes of policy.
8.6	We have seen instances where, in the face of what appeared to be very small profit allocations to policyholders compared to the profit attributed to shareholders, the actuary indicated he would support a higher allocation of profits to policyholders should the company feel disposed to make such an allocation (which it did not).
8.7	In one instance a proprietary company reported a significant profit arising from the public flotation of one of its long-held investments. The company subsequently paid a substantial dividend to its parent. In the same year no reversionary bonuses were allocated to with-profit whole of life and endowment policies.
8.8	The particular investment giving rise to the profit was shown in the company's financial statements as an investment of the company without qualification and certain contingent liabilities (guarantees given by the life insurer covering obligations of the floated company) were also shown in the company's financial statements without qualification.
8.9	In effect life insurance companies have the capacity to select after the event which particular profits arising from their business will be for the benefit of policyholders and which profits will be attributed to the shareholders. This is clearly so when the company has not disclosed the "ownership" attribution of the company's assets.
8.10	We are also aware that companies can allocate benefits to policies even though the underlying assets did not earn positive yields. Such allocations may be at the "cost" of other policyholders and/or of the shareholders.
Factors in determining the allocation of profits between policyholders and shareholders
8.11	There are no effective rules of law in New Zealand governing the splitting of profits between current policyholders, shareholders and reserves in a life insurance company with participating policies.
8.12	In mutual companies the issue is one of how much profit to transfer to or from reserves and how much to allocate to policyholders in any given year. In the case of proprietary companies it is also necessary to allocate profits between participating policyholders and shareholders.
8.13	We expect profit allocation decisions are based on a variety of factors including current and expected profitability of the asset portfolio, indications given to policyholders at the time policies were sold, comparable market performance, the interests of the shareholders of the company, and the need to service shareholders' funds.
8.14	The role of the actuary in the profit allocation process is unclear. As we noted earlier (see para 4.8) the actuary is required to prepare a report on the financial condition of the company each year. That report is required to state the principles on which the distribution of profits was made. However the actuary is not required to state, for example, if the distribution appears fair or equitable as between classes of policyholders or as between shareholders and policyholders (although the actuary may choose to do so).
8.15	The actuary is appointed by the company and owes a duty of care to the company. There is not an explicit duty of care towards, or mandate to act for, or in the interests of, a company's policyholders. Many actuaries are employees of the life insurance companies they are reporting on. Some actuaries are directors of the companies they are reporting on. In other instances consulting actuaries are appointed by the directors of the company to report on the company's financial position. There would appear to be important conflict of interest questions for actuaries who undertake section 18 investigations, questions which, as far as we know, are not addressed by formal industry guidance.
8.16	There is no existing opportunity, either in the law or in the conventional policies offered to the general public, for the policyholders themselves to have a say in the distribution of a company's profits between shareholders and policyholders and as between different classes of policyholders.
8.17	Mr Richardson-Hay in his paper (see para 2.19) observed: Life offices in New Zealand have no restrictions in the following areas: ... ... Profit sharing for with profits policyholders The basis on which profits are shared is totally at the discretion of the life office. Policyholders are not informed of this issue. Nor [are policyholders informed] in the case of branch operations if a reduction in New Zealand funds will be required to support another part of the global fund
8.18	Until recently disclosure of the company's approach to profit allocation was a matter for promotional and contractual documentation. However life insurance companies are now⁴⁹ required to prepare investment statements.These documents have to be provided to all prospective investors andare required to include: a brief description of the key factors that determine the returns to the policyholders; a statement whether or not an amount of returns, quantifiable at the date of the investment statement and enforceable by subscribers, has been promised and, if so, the amount or how it is to be calculated; and with respect to the consequences of policy termination: a brief description of the policyholders' rights to terminate or surrender the policy; a statement of the types of charges which may be incurred in relation to the early termination of the investment; a statement of the amount of any charges (dollar amount or percentage) which may be incurred in relation to early termination, or, if the amount or percentage cannot be described at the time the investment is made, a statement describing how the charges will be calculated.
The approach to the allocation of profits between shareholders and policyholders in Australia and the United Kingdom
8.19	As noted earlier, in Australia life insurance legislation requires life insurance business to be conducted within separate "statutory funds"(see para 6.10 onwards).
8.20	The LIA (Aust) contains detailed provisions about many facets of the operation of the statutory funds. With respect to the allocation of operating profit section 60 states that, for a statutory fund representing Australian participating business, at least 80% of the profit (or such higher percentage as may be specified in the company's articles of association) must be added to policy owners' retained profits of the statutory fund. The balance of operating profit must be treated as, or added to, shareholders' retained profits.
8.21	The Australian legislation allows for different treatment for overseas participating business. For example, there is no 80% minimum profit allocation rule. Instead, overseas participating policyholders can have any proportion of the funds' operating profit added to, or treated as, their retained profits provided the allocation would not be inconsistent with the company's articles of association. If a company's articles of association require any part of a profit representing overseas participating business to be treated as overseas policyholders' retained profits then that part of the profits must be treated as, or added to, overseas policyholders' retained profits.
8.22	With respect to the distribution of retained profits, the LIA(Aust) provides that Australian policy owners' retained profits may only be distributed to owners of Australian participating policies. However a similar provision applying to the distribution of the retained profits of overseas participating policyholders is qualified by a further provision which allows overseas policy owners' retained profits, with the approval of the Commissioner, to be transferred to owners of Australian participating policies or to shareholders' funds.
8.23	In the United Kingdom the ICA(UK) (section 30) limits the options available to a company to dispose of profits when the company has with-profits policyholders. The section appears designed to ensure an element of stability in the proportion of profits which can be distributed to policyholders from year to year. Based on the premise that with-profits policies are usually sold by the illustration of the future effects of past bonus declarations, the rule of law means that companies cannot lower the proportion of profits allocated to policyholders from one year to the next by more than 0.5 percentage points without invoking a formal procedure involving notification to the Department of Trade and Industry, publication of the intention in the London, Belfast and Edinburgh Gazettes and in specified newspapers, and delaying the allocation by almost two months from the giving of the public notice.⁵⁰
Minimum surrender values for life insurance contracts
8.24	The effect of the practices followed in the allocation of profits to participating policies is particularly evident on policy termination.
8.25	Earlier in our paper (see para 2.13 onwards) we discussed the vulnerability of New Zealand life insurance policyholders to the very wide discretion of life insurance companies to determine the surrender value of life insurance contracts. The current position in New Zealand is different from that prevailing in Australia.
Policy termination in Australia
8.26	Under sections 207 and 209 of the LIA(Aust) the LIASB is required to develop an actuarial standard related to Minimum Surrender Values and Paid Up values for life insurance policies.
8.27	In May 1997 the LIASB issued for comment draft standard 4.01 "Minimum Surrender Values and Paid-up Values". It is proposed that the standard, when formally promulgated, will apply to transactions occurring on or after 30 June 1998.
8.28	The purpose of the standard is described in the "Overview" section as being twofold: To prescribe, for the relevant policies, the minimum amount which must be paid (provided for) by the life company when the policy owner requests that the policy be surrendered (made paid-up). To prescribe the amount which is appropriate as the base value for the Minimum Termination Value from which the Solvency Requirement of a statutory fund is determined
8.29	The objectives in prescribing these amounts were described in the "Introduction" to the standard as: in protecting the interests of surrendering policyholders in the situation of terminating (or making paid-up) life insurance policies prior to their full term, by providing for a minimum amount; and in protecting the interests of remaining policyholders, by both: - ensuring that the costs of termination are being appropriately borne by the surrendering policy owners; and - providing a base to the value of policy liabilities which is used as a component in the determination of the Solvency Requirement for the statutory fund.
8.30	In outlining the principles underlying the standard the "Overview" included: During the development of the Standard it was recognised that there are three broad categories of charges levied against life policies by the life company to meet its expenses and provide for its profits. This categorisation - according to the timing of application of the charges - has been adopted throughout the Standard, as: front end charges; ongoing charges; and back end charges. The most important (and variable) factors affecting the surrender value of the policy are considered [to be] the charges in respect of the establishment and termination of the policy - or the front end and back end charges. Further, while regular product information disclosure reinforces to the policy owner the impact of ongoing charges on the in force value of their policy - the effectiveness of disclosure requirements in respect of these other charges (front end and back end charges) is arguably less. The Standard therefore seeks to limit the adverse effects on the policy owner of excessive charges on the establishment of a policy and significant reductions in the in force value of the policy due to charges levied on termination.
8.31	The first part of the standard says: 1.1 The Minimum Surrender Value of a policy must provide a basic level of protection to the owner of the policy being surrendered, while not disadvantaging the interests of the owners of other policies within the statutory fund or those of the shareholders
8.32	The draft standard is quite detailed. It prescribes the methodology to be applied to determine the surrender values of the four major policy types. It requires that Minimum Surrender Values be provided for all policies issued after 1 July 1995 with some exceptions.⁵¹
8.33	The standard prevents ongoing charges being levied at a level exceeding that actually applied to the policy. It also provides that charges cannot exceed the level prescribed in the standard. For example, the standard prescribes a maximum administration or transaction charge in respect of a surrendered policy of A$50 (for 1998).
8.34	While the draft standard itself does not prescribe the minimum returns policyholders can expect from their policy, since these returns will obviously vary widely among different types of policy and will depend on the performance of the assets supporting those policies, the standard will require that most policies prescribe a minimum surrender value which includes all returns credited to the policyholder in relation to that policy.
8.35	The minimum surrender values become part of each company's solvency calculation.
Comment
8.36	The processes used by proprietary companies for determining the division of profits between policyholders and shareholders, and between different classes of policyholder, are generally unclear to the outside observer.
8.37	With the significant shift, as a result of demutualisation, towards life insurance business being conducted by proprietary rather than mutual life insurance companies, the issue of profit allocation between shareholders and policyholders is likely to assume greater importance in future years.
8.38	As already noted (see para 2.19), there appear to be a number of ways that a New Zealand life insurance company can adjust the return provided to policyholders, including the levying of expenses against policies, describing the procedures for determining bonuses in imprecise and obscure language in the policy documents to allow flexibility in bonus calculation, adjusting bonus declarations already made and removing expected terminal bonuses.
8.39	Where the ownership of life insurance companies or portfolios change policyholders could be adversely affected if new owners have a different investment philosophy or approach towards benefit allocation.
8.40	The introduction of the new investment statements should go some way to improving the quality of disclosures to prospective policyholders but does not affect the ability of life insurance companies to allocate benefits at their discretion.
8.41	Australia has specific rules of law concerning the allocation of life insurance profits between participating policyholders and shareholders. The United Kingdom has requirements which ensure some stability in profit allocations from year to year. There are no such rules in New Zealand.
8.42	Some New Zealand life insurance policies, generally the "capital stable" policies, have what is akin to a minimum surrender value. Under those policies there could be a promise by the life insurer to pay the policyholder a minimum amount related to the original investment or premiums paid by the policyholder. Otherwise, however, the policyholder may have no assurance as to the value of the investment at any given time.
8.43	We think there are a number of questions which need to be addressed concerning the allocation of profits between policyholders and shareholders and the possible provision of minimum surrender values for life policies. We set out these questions in the final section of the paper.