Direct participating contracts

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The contractual terms specify that the policyholder participates in a share of a clearly identified pool of underlying items.

Includes any contract which creates a contractual obligation linked to underlying items.

  • Explicit contractual terms
  • Includes regulatory requirements

However, measurement based on expected cash flows (not contractually-specified cash flows). Not dependent on holding of underlying assets, e.g. could be related to an indexed fund. Obligations need not be to current generation of policyholders. Measurement of contracts using the variable fee approach.



Unit-linked products

Choices of funds are transparent and clearly identified to policyholders

Universal Life Products

No clearly identified underlying items

The entity expects to pay to the policyholder an amount equal to a substantial share of the returns from the underlying items

  • Unit Linked products: 100% of fund return
  • Participating products: e.g. 90% policyholder fund’s surplus

A substantial proportion of the cash flows the entity expects to pay to the policyholder should be expected to vary with the cash flows from the underlying items.

  • Unit Linked products: Death benefit = Max(Fund Value, Sum Assured)
  • Participating products: Reversionary Bonus, Terminal Bonus
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