Life insurance involves the transfer of risk from an individual to a life insurer, and the pooling of risks over large groups of policies. With participating insurance, a portion of these risks is borne by the policyholders or shared between the policyholders and the insurer. In return, policyholders may receive policyholder dividends, changes in the Variable Cash Value (VCV) or bonuses. These dividends, changes in VCV and bonuses are not guaranteed; they can vary from year to year.
Generally speaking, dividends, changes in VCV or bonuses on these policies reflect the economic situation, over time, of the class to which they belong, as adjusted to maintain consistency in distribution from one period to another. Dividends, changes in VCV and bonuses will typically vary based on the performance of a number of factors, with the investment return, including the impact of asset defaults and investment expenses, normally being the main determinant of dividend and bonus performance. Other factors include, but are not limited to, mortality experience, taxes, and policyholder termination experience.
The dividend, changes in VCV and bonus allocation process seeks to achieve reasonable equity among classes of policies and among generations of policies, although there are practical limits that apply to the allocation in some circumstances.
Annually, the directors of Sun Life Financial Indonesia determine the amount of dividend, changes in VCV or bonus to be declared to participating policyholders. This determination is based on the advice of the Company's appointed actuary, who applies accepted actuarial principles and practices.