Shadow shares hit bottom line
Shadow shares cost Partners Life Group Holdings $900,000 in the most recent financial year, its group financial statements show.
Friday, August 15th 2014, 6:00AM
by Susan Edmunds
Partners Life’s Group Holdings recorded a loss of $3.798 million for the 2014 year. Yesterday we reported the life company recorded a $2.85 million loss, after a $4.97 million profit the previous year.
Today, we can reveal that the Group result paints a worse picture. While it reported a $4.686 million profit in 2013, its result for the 2014 year was a $3.798 million loss.
The difference between the life company and group results is the $900,000 cost of revaluing adviser shadow shares issued in previous years due to an appreciation in the company’s share price over the 2014 year.
The scheme remunerates IFAs as a kind of delayed commission and is designed to incentivise advisers who write strong volumes of business while maintaining good persistency. They have no voting rights.
Advisers are allocated a shadow share for each $20 of issued annual premium, net of lapses, each scheme year. Persistency has to be maintained at 85% for at least three years but bonuses are payable when it exceeds 90% and 85%.
Partners said it had more than 1576 advisers signed up. “We firmly believe we have a strong value offering to advisers, not only giving them the opportunity to offer their clients the best product in the market but also giving them the opportunity to share in our long-term success through the adviser shadow share scheme. The 2014 year saw our third allocation of shadow shares to advisers, with 1.35m shares allocated at $3.75.
It said the loss was due to adverse claims and lapse experience compared to assumptions over the year. “Although the number of claims paid was close to expected, the average dollar value of lump-sum claims paid was higher than expected. Such volatility is not unexpected in the short term. We believe our underwriting processes are prudent and our long-term claim assumptions are in line with the market.”
There have been questions raised about how some insurers that rely on reinsurance, such as Partners, will fare if the Reserve Bank changes the way reinsurance has to be recorded for solvency purposes.
Partners said the proposed standard, as based on the Reserve Bank’s most recent consultation document, allows the use of reinsurance financing for solvency purposes. “Our panel of reinsurance and retrocession partners… continue to strongly support out rapid growth and we have been working with SCOR to explore how we might amend the terms of our existing reinsurance treaties in order to meet the requirements of the proposals set out in the RBNZ’s May 2014 consultation document. We will continue this collaborative process once the next consultation paper is issued by the RBZN and we can assess what their requirements will be for our reinsurance treaties.”
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