A fee that is charged by an insurer for the services it provides to the policyholders. It constitutes the insurer’s share of the underlying items in an insurance contract and the other cash flows needed to fulfill the contract (characteristically, these cash flows do not vary on returns). An insurer is obliged to pay the policyholder an amount equal to the value of the underlying items less the variable fee for the services provided.
Under the variable fee approach (VFA), variable fee is part of the fulfillment cash flows (FCFs), which also includes account value and risk adjustment.
