The Closed Fund Alternative

Hairs, C. J.; Arnold, M.; Gustar, A. J.; Hare, D. J. P.; Needleman, P. D.; Tuley, P. J. and Webber, J. M. (1999). The Closed Fund Alternative. British Actuarial Journal, 5(4) pp. 699–761.



Closure of the fund to new business is a strategic option that is not usually considered as a part of the day-to-day running of a life assurance company. The paper explores certain circumstances in which it can be appropriate to consider it, though in the Working Party's view consideration of the closed fund alternative normally arises as a matter of course only in the context of demutualisations, and then as an indicator of the potential value of membership rights.

The topic is discussed in terms of legal, regulatory and professional aspects, and the profession is invited to consider providing more specific guidance for Appointed Actuaries whose companies are faced with demutualisation proposals. A number of practical aspects of operating a closed fund are outlined. The high-level financial considerations are illustrated by reference to a hypothetical case, and the perspectives of directors, independent and Appointed Actuaries and others are considered.

Several recent examples of demutualisations where the closed fund alternative was considered are summarised in appendices, and some examples of closed or virtually closed funds are cited.

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