Hi Am quite confused by the core reading on this method for calculating asset shares. Says done for 0/100 UWP funds??Why not for 90 10 funds diff in product chg and expense accrue to estate or SHT. Not.Not sure what this means. After this it says some companies credit back excess charges over actual expenses! In summary not sure why this method is used,how the method works and what to watch out for from an exam perspective.
Hi Apologies for taking a while to reply to this post. The general principle of an asset share as a retrospective accumulation reflecting past experience is the same for UWP as for CWP. However, we do get the question for UWP of whether we should deduct actual expenses or deduct expense charges. Which of these deductions is best, depends on whether we are talking about 90/10 UWP (ie where all sources of surplus are shared between policyholders & shareholders) or 0/100 UWP which is more like unit-linked in that investment surplus lies mainly with policyholders and expense & mortality surplus mainly with shareholders. If it's 90/10 UWP, then deducting actual expenses from asset share ties in. This will result in the expense experience being shared between policyholder & shareholder as the policyholder bonus will depend on the asset share and the shareholder transfer will depend on this bonus too. If it's a 0/100 UWP, then deducting charges from the asset share ties in best. Here (similar to UL) the policyholder benefits (based on asset share) will reflect the charges. Any difference between charges and expenses is profit or loss to the shareholders. The idea of deducting charges and then crediting back any excess of charges over actual expenses effectively does " - charges" then " + charges - expenses", so basically "- expenses". This makes it similar to the first method (so appropriate if the business is 90/10). Hope this helps Lynn
Thanks for this Lynn. Makes some sense now. I am also struggling with the Shadow Fund approach for UWP.Can I request for some help on this please? Cheers
Hello again The shadow fund approach is conceptually the same as the "retrospective accumulation using product charges". The shadow fund is just a particular approach to implementing this calculation in practice. The shadow fund approach is to keep track of the asset share (ie the shadow unit fund) on a daily basis as part of the policy admin system. As well as recording the actual unit fund (based on bonus rates declared) the system will also hold a shadow unit fund (based on actual investment returns). This is a practical way to implement a retrospective calculation that reflects actual premiums paid, actual investment returns and deducts product charges, ie an asset share. The alternative is to produce asset share calculations perhaps just when they are required, rather than daily, and perhaps just for sample policies, rather than every policy individually. Doing calculations just for representative sample policies can be tricky for UWP given the premium flexibility usually means different policies can have had quite different premium histories. Best wishes Lynn
