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Numerical example of AWP and UWP?

Discussion in 'SA2' started by studentactuary15, Dec 18, 2021.

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  1. studentactuary15

    studentactuary15 Active Member

    Hi, I am very confused with how AWP bases work. I think it becomes even more complex when there is UWP thrown in. Please can someone provide simple numerical example for these? I hope it won't be too onerous.
     
    studentactuary15, Dec 18, 2021
    #1
  2. Em Francis

    Em Francis ActEd Tutor Staff Member

    Hi
    Is your confusion in around the difference between AWP and CWP (Conventional With-Profits) policies?

    Under AWP, bonuses are added annually to a fund which is built up of previous premiums.
    So it acts rather like a bank account, where bonuses are analogous to bank interest.
    UWP is a specific form of AWP where the fund is expressed as units and bonuses are expressed as additional units or unit price increases. With a non-unitised AWP policy, bonuses are just expressed as a percentage of the fund.

    Similar to CWP, bonuses can be added regularly or at maturity (terminal bonus) but the main difference is that with an AWP fund, the fund can be expressed in today's terms, eg if fund is £100 and regular bonus of 1% is added (and so guaranteed) then the fund is now £101. Whereas with CWP there is no such current fund value and bonuses are added to the future sum assured.

    Hope this helps.
    Thanks
    Em
     
    Em Francis, Dec 19, 2021
    #2
  3. prachi

    prachi Active Member

    .
    Is this "fund" equivalent to asset share of that policy?
     
    prachi, Feb 17, 2022
    #3
  4. Em Francis

    Em Francis ActEd Tutor Staff Member

    No, the asset share is what the policy is actually worth, the fund here is in relation to what is actually paid (assuming no MVRs applied) as it is accumulated at the declared bonus rates not the actual investment return earned.

    However, companies may use a ‘shadow fund ‘approach where the shadow fund represents the asset share as it is the accumulation of premiums, net of product charges at the actual investment return.

    The company would use this to decide on the bonus distribution.

    Does this make sense?


    Thanks

    Em
     
    Em Francis, Feb 18, 2022
    #4

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