UWP fund value and asset share

Query closed as has been answered.

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I am confused about the notes below from chapter 26:

"UWP regular bonuses are added each year to something closely related to the current asset share. Note, though, that if past bonuses have been systematically less than investment returns, the fund value may be systematically lower than the asset share".

My questions are:
1/ what is regular bonuses added on? The notes said to something closely related to the current asset share. I thought the bonuses are added on to current fund value?
2/ how to understand "the fund value may be systematically lower than the asset share?

Any help is much appreciated.

 

On a UWP policy, the customer has a unit fund which they can see. Usually, their payments will go into this fund, charges will be deducted and bonuses will be added.

However, this is different from the asset share of the policy, which is basically the total value of the policy (all income and outgo associated with the policy).

To give you an example, say a customer pays their first premium of £1,000 into their UWP policy. The unit fund will show £1,000 (less any initial charges). However, say it cost £1,500 in expenses to set this policy up, then the asset share is actually -£500 (initial premium less expenses).

When a company is setting bonus rates, they will set the rates based on the asset share of the policy, but the bonuses actually get applied to the unit fund. Over time, the company will want to set bonus rates to "systematically" give a unit fund value lower than the asset share, as this will allow the build up of a terminal bonus cushion to smooth out bad years.

Hopefully that's clear!

 

That is very clear cjno1 thanks very much!