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Box fund?

S

Sponge

Member
I’m confused as to what exactly is a box fund and how does it help the insurer to manage the unit funds? Is it’s whole purpose to manage the price by acting as a storage for stocking up on units until the organisation is ready to de-allocate units. Does this influence the policy holder pricing if the organisation operates a hold and see and sells units at cheaper price?
 
The management box is a number of units which are held in excess of the number required to back policyholders' unit funds, and hence are "owned" by the company. The box helps the insurer to manage its unit-linked funds through transaction management.

In particular, it allows the company to trade units without having to make underlying asset trades. For example, if a policyholder pays a premium the company can allocate units to them from those that it holds in its box rather than having to buy assets in the market in order to create more units. If a policyholder surrenders their policy, (some of) the units that are given up can be held in the management box rather than needing to sell the underlying assets.

Therefore holding a management box (or manager's box) can allow the company to avoid having to make regular switches between bid pricing and offer pricing bases.

Other than the point above about bid/offer pricing, the management box does not have any influence on the unit pricing. The units held in the box have the same (equitable) price as all of the other units.

Because the company "owns" the management box, good investment performance on these units will benefit the shareholder. However, the opposite is of course true if performance is poor.
 
I think I understand. The box fund has an indirect influence by influencing the basis used in unit pricing by creating a stable environment that does not switch between a bid/offer basis frequently. In essence a very large transaction (policy holder buying/selling a lot of units) will need to occur that will cause a shift in the basis used?
 
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