Chp15: Practice Question(iii)

Discussion in 'SA2' started by kntg24, Feb 14, 2021.

  1. kntg24

    kntg24 Active Member

    Hi. I don’t understand the solution provided.
    1. How will regular bonus increase the guarantee?

    2. What does it mean by, “ At least the proposal, like the other option, only applies at one point in time, reducing scope for selection against the company.”?

    3. “The asset mix is under the control of the company under UWP.” Does that mean the asset mix is not under control for unit-linked?


    Thanks for the reply in advance.
     
    Last edited: Feb 14, 2021
    kntg24, Feb 14, 2021
    #1
  2. Lindsay Smitherman

    Lindsay Smitherman ActEd Tutor Staff Member

    Hi - answers to each of your questions as follows:

    1. Once added to the benefit, regular (or reversionary) bonus becomes guaranteed. [This is explained in Subject SP2 and reiterated in Chapter 20 of SA2.]

    2. The no-MVR guarantee only applies at the fifth anniversary, so it only applies to any surrenders taking place on one specific day during the policy's lifetime. Selection against the company would happen if investment markets have fallen (so customers might choose to cash in at a guaranteed value that is higher than the value of the underlying asset share). Limiting the guarantee to just one day reduces the chances of it being in the customers' interests to select against the company in this way.

    3. For unit-linked business, the policyholder chooses which funds to invest in (eg they might select to put 25% of their investment into a domestic equity fund, 15% into a property fund, 35% into an emerging markets equity fund, etc),
     
    Lindsay Smitherman, Feb 15, 2021
    #2

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