1.1.1 The Bonus and Valuation Research Group of the Faculty of Actuaries began the work which eventually led to this paper towards the end of 1991. About this time there was considerable speculation that levels of maturity payouts on with profits policies might be significantly in excess of the level that could be justified by the actual investment earnings underlying the policies. The initial aims of the research group were to:
(a) examine this claim;
(b) consider to what extent overpayment, if any, could be explained by the smoothing methods that might have been used by offices; and
(c) examine the practical consequences of continuing to adopt those smoothing methods.