Accumulating With-Profit Policies (UWP)

[Alan2007]

Page 15 of Chapter 6, I don't understand part of the paragraph which reads ".....The key thing that distinguishes both of the approaches (UWP having a unitised form) from the unit-linked is the discretion that the company has over the bonuses granted in whatever form.."

Can you please explain?

I understand that unit-linked policies does not pay bonuses

 

[kanch]

Page 15 of Chapter 6, I don't understand part of the paragraph which reads ".....The key thing that distinguishes both of the approaches (UWP having a unitised form) from the unit-linked is the discretion that the company has over the bonuses granted in whatever form.."

Can you please explain?

I understand that unit-linked policies does not pay bonuses

The core reading here if I can recall is trying to explain the difference between UWP and Unit linked polcies.

The UWP policies works similar to the Convetional with profit policies when it comes to bonus decleration where the company decides (this is what the notes refers to using discretion) on the level of regular and terminal bonuses taking into account PRE, Asset share etc.....

Otherwise,UWP works exactly in the same way as the Unit linked with the premiums paid being used to buy units. There could be unit/non unit charges as in the unit linked case.

I suppose you could compare Unit linked polcies as the unit version of the non profit conventional policies and UWP as the unit version of the convetional with profit policies. - Although Conventional and Unit linked works very different!

There could also be non unitised accumulationg with profts which I don't think is required knowledge for ST2.

Hope this helps.

 

[Alan2007]

The core reading here if I can recall is trying to explain the difference between UWP and Unit linked polcies.

The UWP policies works similar to the Convetional with profit policies when it comes to bonus decleration where the company decides (this is what the notes refers to using discretion) on the level of regular and terminal bonuses taking into account PRE, Asset share etc.....

Otherwise,UWP works exactly in the same way as the Unit linked with the premiums paid being used to buy units. There could be unit/non unit charges as in the unit linked case.

I suppose you could compare Unit linked polcies as the unit version of the non profit conventional policies and UWP as the unit version of the convetional with profit policies. - Although Conventional and Unit linked works very different!

There could also be non unitised accumulationg with profts which I don't think is required knowledge for ST2.

Hope this helps.

Thanks for reply. The study notes says the unitised version of the UWP comes in 2 forms which are:

1) The unit price is constant equals to 1.00. Guarantees and bonuses are added would be added in terms of the number of units.

2) The unit price varies. Guarantees and bonus additions would be allowed for by the increase in the unit price.

After this the core reading compares both of these forms to to Unit-Linked Products where the difference is at the discretion of bonuses by the company

I am afraid I still cant understand what the core-reading is saying.

 

[kanch]

Thanks for reply. The study notes says the unitised version of the UWP comes in 2 forms which are:

1) The unit price is constant equals to 1.00. Guarantees and bonuses are added would be added in terms of the number of units.

2) The unit price varies. Guarantees and bonus additions would be allowed for by the increase in the unit price.

After this the core reading compares both of these forms to to Unit-Linked Products where the difference is at the discretion of bonuses by the company

I am afraid I still cant understand what the core-reading is saying.

For unit linked policies the the price of the units reflects the current value of the underlying assets. So this will fluctuate daily. So here the insurer pass on all the investment risk to the P/H although poor fund performance can lead to adverse publicity and loss of future business. Still there will be some investement risk tot he insurer if the charges are fund related!

For UWP contracts the unit price is increased smoothly over time. So you will not find the daily fluctuations in unit prices as in unit linked cases. Company will use its discretion over this smoothing policy for UWP contracts (subject to PRE and PPFM). This would mean holding back some of the actual return to pay by terminal bonus at maturity.

(The above assumes UWP contracts operates by increases in the unit prices (2 - above). Other method is through keeping the unit price fixed and increasing the number of units. (1 - above))

Hope this addresses your problem!

Good luck

 

[Alan2007]

For unit linked policies the the price of the units reflects the current value of the underlying assets. So this will fluctuate daily. So here the insurer pass on all the investment risk to the P/H although poor fund performance can lead to adverse publicity and loss of future business. Still there will be some investement risk tot he insurer if the charges are fund related!

For UWP contracts the unit price is increased smoothly over time. So you will not find the daily fluctuations in unit prices as in unit linked cases. Company will use its discretion over this smoothing policy for UWP contracts (subject to PRE and PPFM). This would mean holding back some of the actual return to pay by terminal bonus at maturity.

(The above assumes UWP contracts operates by increases in the unit prices (2 - above). Other method is through keeping the unit price fixed and increasing the number of units. (1 - above))

Hope this addresses your problem!

Good luck

Thanks for the reply. It does address my problem in undretsanding the core reading.