The Cover Slip / The guaranteed prize
Funded inside the product
The guaranteed prize
The third way to carry a prize is to fund it: take a slice of every qualifying stake into the same pot the prize will be paid from, so the liability and the money arrive together. Here the arithmetic is not a premium but a rate.
Slip stub
- Funding rate
- 1.0% of qualifying stakes
- Monthly qualifying stakes
- 52,000,000
- Into the meter
- 520,000.00 a month
- Paid out
- 500,000.00 a drop, twelve drops
- Residual
- 240,000.00, or 4.0% growth in the meter
the perilOne stated act that must happen for the prize to be owed - and the estimate of how often it has
the retentionThe largest prize the promoter funds from the promoted product’s own margin, before any cover responds
the coverA schedule of twelve fields that indemnifies the promoter, and is never a reader’s protection
Desk The Cover Slip, cycle 62 · Page the prize that is funded rather than covered · Mechanism a slice of every qualifying stake into the same pot · Rate 1.0% of qualifying stakes · Distinction no premium, no peril estimate, no insurer
Direct answer A guaranteed prize is funded, not insured. A fixed slice of every qualifying stake is set aside into the pot the prize will be paid from, so the exposure grows with the turnover that creates it and there is no lump-sum hole for a premium to cover - which is why a guaranteed meter is generally retained rather than transferred.
Three ways to carry the same kind of promise
01Contingent: the prize depends on something outside the product
The seasonal sample is contingent. The act happens or it does not, the turnover does not create the liability, and the promoter faces a lump sum with no funding behind it. That is the case that gets transferred, and the case this desk’s premium arithmetic describes.
02Funded: the prize is paid out of the product’s own turnover
The meter case is funded. One per cent of 52,000,000.00 of qualifying stakes is 520,000.00 a month, and the prize pays out at 500,000.00 a drop. Over twelve months the pot takes in 6,240,000.00 and pays out 6,000,000.00, so it grows by 240,000.00 - 4.0% of what it paid.
The growth is the reason meters are funded rather than covered: a funded meter is designed to rise between drops, and a rate that is slightly too high is a visible, self-correcting defect rather than an unbudgeted loss.
03Pooled: the prize fund is what the entrants paid in
The third case belongs to a different desk: a draw whose prize fund is the money ticket sales put into it. There is no promoter’s balance sheet involved at all. The three cases are worth keeping apart because the same headline number can sit behind any of them.
A funded meter over one yearfunding rate 1.0% of qualifying stakes
monthly qualifying stakes 52,000,000
into the pot each month = 52,000,000 x 0.010 = 520,000.00
paid out each drop 500,000.00
over twelve months:
funded = 520,000.00 x 12 = 6,240,000.00
paid = 500,000.00 x 12 = 6,000,000.00
residual = 6,240,000.00 - 6,000,000.00 = 240,000.00
growth in the pot as a share of what it paid = 240,000 / 6,000,000 = 4.0%
the same single prize, if it were contingent:
expected loss = 500,000 x 0.351% = 1,755.00, and a premium of 2,457.00
but the promoter has 6,240,000.00 of funding, so there is nothing to transfer
A guarantee and a contingent prize read the same to a reader and are financed in opposite ways. One is a promise with a pot behind it; the other is a promise with a premium behind it. On the sample book the second is transferred at 23.8 times retention and the first is never transferred at all.
funded 1.0%520,000 a month500,000 a drop4.0% growth