Am not sure I follow the various methods for calculating asset shares for UWP contracts. Retrospective accumulation using product charges Accumulate asset share using product charges rather than actual expenses.How are charges recovered a proxy for actual expenses!! Arent product charges purely related to providing guarantees and totally unrelated to expenses. IT also says for a 0:100 basis difference between product charges and expenses accrue in the estate of the WP fund.! I also dont understand the SHadow fund method. asset shares calculated in a similar way as for the bid value of units within the unitised fund.IT then says the latter represents accumalation of premiums ,net of product charges at the relevant bonus rates!!! Am not sure what am I missing here!!!! the whole paragraph didnt make any sense to me .!! Help!!
UWP works in much the same way as unit-linked. We set charges to recover the expenses. So for example, the fund management charge may be a good proxy for investment expenses and the policy fee may be a good proxy for fixed per policy expenses. The Core Reading in Chapter 24 says: "This is primarily done for unitised with-profits business written on a 0/100 basis where the difference between product charges and expenses accrues either in the with-profits estate or outside the with-profits fund (thereby forming the shareholder transfer)." If we pay the policyholder their asset share based on expense charges (rather than actual expenses we have incurred), then the difference will remain in the estate or be paid out to shareholders. In this case we work out a shadow unit price for the with-profits fund using the unit pricing techniques described in ST2. This shadow price will go up or down each day in the same way that unit-linked prices do. For each policyholder we also record the number of shadow units they have (in the same way as for unit-linked policies). The number of shadow units goes up when premiums are paid, and goes down when charges are deducted. This represents the accumulation of premiums, net of product charges, at the actual investment return earned on the assets. The Core Reading in Chapter 24 says: "Here, asset shares for unitised with-profits are calculated in a similar way as for the bid value of units within the unitised fund. The latter represents the accumulation of premiums, net of product charges, at the relevant bonus rates." So "the latter" in the quote above refers to the bid value of units. This is calculated using the unit price based on the bonus rates (rather than the shadow unit price based on the actual investment return). Best wishes Mark
