This paper describes current asset share techniques, examines alternative asset share philosophies and discusses practical issues associated with the calculations. Alternative approaches to smoothing payouts using asset shares are examined. A financial management framework is described which provides information on the financial position of a with-profits fund. A central part of the framework is the concept of risk-based capital. The factors to be considered in determining risk-based capital are described and examples given of the possible capital needs of with-profits business.

introducing the paper): Asset shares play a central role in the management of a with-profits fund. For some considerable time they have been used to help determine the appropriate level of payouts at bonus declaration time. Today, however, they are used much more widely, in a number of quite different situations.On a day-to-day basis, projected asset shares now stand behind many of the surrender and maturity values which are used by salesmen and intermediaries at the point of sale, and they are often used internally to demonstrate the on-going financial strength of the with-profits fund. Asset shares have also featured prominently in recent demutualisations, and in circumstances where funds have been reconstructed and the sharing of profits and assets between shareholders and policyholders has been redefined, or more closely defined.In almost every recent assignment that Mr Needleman and 1 have carried out for with-profits offices, asset shares have been an important part, and that has been a major influence on the production of this paper.We felt that to document asset shares techniques and practices would be a valuable exercise, and we have attempted to do that in Section 2. However, we also wished to develop some other and slightly fresher themes, covering smoothing methods, a framework for the financial management of a with-profits fund, and risk-based capital.We demonstrate, in Section 2, that a wide variety of asset share techniques and philosophies exists, and that these can lead to quite significant differences in results. We think that it is perfectly reasonable that different offices have different approaches to asset shares, and we do not seek a standard approach or wish to limit the alternatives available. However, we do suggest that significant features of the asset share and bonus philosophy should be brought to the attention of with-profits policyholders, which is not always the case at the moment.While most offices have well-defined processes for determining asset shares, we think that rather less have well-defined processes for determining payouts or for smoothing. We accept that there is a large number of factors which need to be taken into account in choosing payout levels, including the