Hi I'm not sure what an UWP product is like (i.e. the differences with Conventional WP)? Could anyone help check if my understanding is correct? - The bonuses (both RB and TB) are distributed to p'hs through the change in unit value or number of units. - This change in underlying unit value / unit no. could be positive or negative. there's no expectation that the bonuses have to be positive as different from the conventional WP. - Since UWP offers great flexibility to p'hs, the investment decision is basically entirely made by p'hs. They can choose when to put premiums into the UWP and what underlying backing assets of each unit they are purchasing. - And if the company offers the switch between unit-linked fund and the UWP fund, that means the p'hs can even choose the sharing ratio with the company (for unit-linked p'hs take on all the risks while for UWP they probably only take 90% of all the risks or 100% of only investment risks, and with the effect of smoothing, p'hs' risk is further reduced). [I feel this is a bit contradict to the point that bonuses can be negative for UWP but maybe negative bonuses are very unlikely for UWP] - Overall UWP works more like an investment fund, with less degree of guarantees (or say expectation) on bonus growth compared to conventional WP. Are these understandings correct? Is there anything I've missed on the differences between UWP and Conventional WP please? Thank you so much!
Hi - you might find it useful to revise the content on these products in Subject SP2. The following thread on the SP2 forum might also be of assistance: https://www.acted.co.uk/forums/inde...-and-conventional-contracts.18920/#post-74180 UWP is an example of AWP business = accumulating WP, the other such example being 'non-unitised', which acts more like a bank account. The main distinction between conventional WP (CWP) and AWP is that under CWP the benefits are expressed in terms of the monetary amount that will be paid at the future benefit date (basic sum assured + attaching bonuses) and, if regular premium, the premiums payable will be fixed. In contrast, the benefit under AWP is observable as a current fund (or account) value, and premiums are more flexible. Taking each of your points in turn: This is how RB is distributed. TB is just given as an extra payout amount at the point of claim. It is normally the case under AWP that there is a guarantee that the value of units (or of the account) will not fall for contractual benefits (death, maturity), ie RB and TB will be positive (or zero). However, as explained in the course notes, under AWP business the company is likely to have reserved the right to apply an MVR on non-contractual benefits (surrenders, switches) which effectively operates like a negative TB. There is premium flexibility, but not investment flexibility - other than making the choice to invest into that UWP fund. The company decides on the investment strategy for the assets backing the UWP business, typically being a mixture of fixed-interest bonds (to support the build-up of guarantees) and equity / property (to hopefully achieve higher returns). Yes to some extent, but for contracts where individuals can switch their allocation between the UL and UWP funds, it is more often the case that the UWP business is written on a '100/0' basis rather than a '90/10' basis. Yes, broadly speaking - although see answers above re guarantees. And bear in mind that if UWP business has a lower level of guarantee than CWP business, this would likely mean that the company can take more investment risk within the supporting assets, thus generating higher returns on average and hence higher bonuses. Hope that helps to clarify the key differences.
[QUOTE=" There is premium flexibility, but not investment flexibility - other than making the choice to invest into that UWP fund. The company decides on the investment strategy for the assets backing the UWP business, typically being a mixture of fixed-interest bonds (to support the build-up of guarantees) and equity / property (to hopefully achieve higher returns).[/QUOTE] Thanks. This is a useful thread. One more question please: I understand that the bonus rates are applied to the account regularly in the form of the RB. Is this is only investment return growth that is applied to the account. Aside from a "Bonus" allocation to the account, is there a daily investment return (related to the assets held) that the account will grow by? Thanks so much for the help!
No there is no additional 'investment return' applied. That is what the RB is doing: adding on part of the investment return earned, whilst holding some of it back to be given as terminal bonus (TB) at the point of claim. In other words, the distribution of much of the surplus is being deferred, just as for conventional WP business.
