Hi, In CH 18 - Asset Shares, section 4 refers to the 3 different methods for the calculation of asset shares for UWP. How are the two retrospective approaches (with actual expenses or product charges) possible with the variable premiums and since the investment return is not clear/ available? What investment return is used in these methods? Does it assume that policy level returns are available? In section 4.3, under the shadow fund approach, unit linked contracts are mentioned? what is the relevance of unit linked funds and the related expense apportionment. Is this to highlight as added benefit of the approach or is there another message highlighted? Thank you!
The calculations are just like for a conventional asset share calculation but more likely to be done on a policy-by-policy basis ... and yes, it might be challenging to determine appropriate investment returns to use.
A UWP fund option might be offered as one of the alternative choices for investing (part of the) premiums under a unitised contract that also allows investment in the range of internal unit-linked funds. So a p/h might, for example, choose to invest premiums 50% in the equity fund, 25% in the fixed-interest fund, 25% in the UWP fund. This is referring to that situation and how it might be dealt with; the shadow fund approach to asset shares works particularly well with this type of arrangement.
