• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

X 3.1(iv) (e) retention of WOP and UL - pg8 solution

Y

yogesh167

Member
Hello

Last para on pg8 solution of this questions says - too many withdrawals lead to shift from offer basis to bid basis, hence unit price decrease and no of withdrawals increase or NOP decrease due to bad publicity.

Could you please explain this last para here - does unit price decrease here relating to existing business or new business?

Let me know if question is unclear.

Thanks in advance
 
The unit price decrease is relevant for both existing and new business. However, the point in the solutions is about the impact on existing business.

You should find that reviewing your SP2/ST2 course notes helps with a reminder of why high withdrawals from a unit fund can trigger a move from an offer to a bid basis, and why both the offer and bid prices would decrease in that case (it relates to the relationship between the appropriation and expropriation prices, on which the offer and bid prices are based).

The solution point states the following:
'Increased withdrawals on unit-linked policies might lead to a switch from pricing on an offer basis to a bid basis, reducing unit prices (to the extent of market spreads and dealing costs) and possibly causing further withdrawals.'

What this is saying is that if there are high withdrawals from a fund, this can trigger even more withdrawals due to the fall in unit prices as a result of the offer to bid basis switch. [Which could then lead to a downward spiral.] This is because if policyholders are unhappy with the performance of a fund (and that performance would have been dragged down by the decrease in prices due to the basis switch), they may be more likely to want to get out of that fund.

Hope that helps clarify?
 
You must log in or register to reply here.
Back
Top