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Direct participating contracts the contractual terms specify that the policyholder participates in a share of a clearly identified pool of underlying items; the entity expects to pay the policyholder an amount equal to a substantial share of the fair value returns on the underlying items; and.
These contracts are intended to provide an investment related service in addition to the core insurance service and often involve sharing of investments returns with the policyholders.
Insight ? Contract with discretionary participation features Premiums received from the policyholders are invested in a with-profits fund at the current unit price. The insurer guarantees each policyholder a minimum value for each unit held within the fund. In addition, there is a bonus payable to the policyholders.
Contracts with direct participation features (b) is based on a share in the underlying items for which the value varies over time. Consequently, the variable fee reflects both the investment performance of the underlying items and the other cash flows needed to fulfil the contracts.