I'm going o we the notes on surplus distribution for awp products. Vintage approach and shadow unit approach are mentioned. I can't quite understand what the vintage approach is doing?
The vintage approach removes the need to calculate the asset share for each policy. We start by looking at a single premium contract sold in 1990 and maturing today and work out a suitable terminal bonus rate. We then calculate a suitable TB for a single premium contract sold in 1991. We continue in this way to work out a suitable TB rate for contracts sold in every year, finishing with a contract sold this year and maturing this year (yes I know this is unlikely, but we can model a hypothetical policy with the investment returns over the life of the contract and calculate a suitable TB rate). Then we can apply these TB rates to any policies maturing this year. So if we have a policy which paid a premium of 200 in 1990, 400 in 1991, 300 in 1992, and then was made paid up, then we can apply the appropriate TB rates for the 1990, 1991 and 1992 vintages to the premiums of 200, 400 and 300 respectively. We then know the payout without needing to know the asset share. Best wishes Mark
