A life office sells unitised with-profits (UWP) policies with term 10 years to males age 40. On 1 January 2019 it sold 5
Posted: Mon May 02, 2022 8:52 am
A life office sells unitised with-profits (UWP) policies with term 10 years to males
age 40. On 1 January 2019 it sold 50 such contracts, each with the following features.
Premiums and Benefits
• The premiums are £1,000 per annum, payable annually in advance.
• On death, the policyholder receives the larger of £10,000 or the bid value of
the units, payable at the end of the year of death.
• On early surrender, the policyholder receives the larger of the bid value of the
units or 80% of the asset share, calculated after the payment of any death
claims, and payable at the end of the year of surrender.
• on survival to the end of the term, the policyholder receives the larger of the
bid value of the units, or 97% of the asset share.
Charging structure
• Bid-offer spread: 95%.
• Allocation rate: 70% of the first premium and 100% of each subsequent premium.
• Management charge: 0.5% of the bid value of the units at the end of each year.
• Mortality charge: The expected mortality cost, using the AM92 Ultimate table,
deducted from the bid value of the unit fund at the start of each year.
The price of units in the UWP fund is guaranteed not to fall. In addition, discretionary bonuses may be declared, in the form of increases in the unit price.
The experience in 2019 and 2020 was as follows.• One person died in 2019, no-one died in 2019.• Three people surrendered their policies in 2019, and two people in 2020.• The investment return on assets was 5% in 2019 and 7% in 2020.• Actual expenses per policy were £400 on 1 January 2019 and £40 on 1 January2020.• Declared bonuses were 3% in both 2019 and 2020.(a) (i) Calculate the total bid value of the unit fund for a single policy in force on1 January 2021. (ii) Calculate the asset share per policy in force on 1 January 2021.(b) A director has pointed out that the office’s conventional with-profits contractsdo not have guaranteed surrender values. She has suggested removing the contractual basis for surrender values from these unitised with-profits contracts,for consistency. Comment on this suggestion, from both the office’s and thepolicyholder’s points of view.(c) The office holds policy values for its unitised with-profits policies equal to the bidvalue of the units. Comment on advantages and disadvantages of this practice
The experience in 2019 and 2020 was as follows.
• One person died in 2019, no-one died in 2019.
• Three people surrendered their policies in 2019, and two people in 2020.
• The investment return on assets was 5% in 2019 and 7% in 2020.
• Actual expenses per policy were £400 on 1 January 2019 and £40 on 1 January
2020.
• Declared bonuses were 3% in both 2019 and 2020.
(a) (i) Calculate the total bid value of the unit fund for a single policy in force on
1 January 2021.
(ii) Calculate the asset share per policy in force on 1 January 2021.
(b) A director has pointed out that the office’s conventional with-profits contracts
do not have guaranteed surrender values. She has suggested removing the contractual basis for surrender values from these unitised with-profits contracts,
for consistency. Comment on this suggestion, from both the office’s and the
policyholder’s points of view.
(c) The office holds policy values for its unitised with-profits policies equal to the bid
value of the units. Comment on advantages and disadvantages of this practice
age 40. On 1 January 2019 it sold 50 such contracts, each with the following features.
Premiums and Benefits
• The premiums are £1,000 per annum, payable annually in advance.
• On death, the policyholder receives the larger of £10,000 or the bid value of
the units, payable at the end of the year of death.
• On early surrender, the policyholder receives the larger of the bid value of the
units or 80% of the asset share, calculated after the payment of any death
claims, and payable at the end of the year of surrender.
• on survival to the end of the term, the policyholder receives the larger of the
bid value of the units, or 97% of the asset share.
Charging structure
• Bid-offer spread: 95%.
• Allocation rate: 70% of the first premium and 100% of each subsequent premium.
• Management charge: 0.5% of the bid value of the units at the end of each year.
• Mortality charge: The expected mortality cost, using the AM92 Ultimate table,
deducted from the bid value of the unit fund at the start of each year.
The price of units in the UWP fund is guaranteed not to fall. In addition, discretionary bonuses may be declared, in the form of increases in the unit price.
The experience in 2019 and 2020 was as follows.• One person died in 2019, no-one died in 2019.• Three people surrendered their policies in 2019, and two people in 2020.• The investment return on assets was 5% in 2019 and 7% in 2020.• Actual expenses per policy were £400 on 1 January 2019 and £40 on 1 January2020.• Declared bonuses were 3% in both 2019 and 2020.(a) (i) Calculate the total bid value of the unit fund for a single policy in force on1 January 2021. (ii) Calculate the asset share per policy in force on 1 January 2021.(b) A director has pointed out that the office’s conventional with-profits contractsdo not have guaranteed surrender values. She has suggested removing the contractual basis for surrender values from these unitised with-profits contracts,for consistency. Comment on this suggestion, from both the office’s and thepolicyholder’s points of view.(c) The office holds policy values for its unitised with-profits policies equal to the bidvalue of the units. Comment on advantages and disadvantages of this practice
The experience in 2019 and 2020 was as follows.
• One person died in 2019, no-one died in 2019.
• Three people surrendered their policies in 2019, and two people in 2020.
• The investment return on assets was 5% in 2019 and 7% in 2020.
• Actual expenses per policy were £400 on 1 January 2019 and £40 on 1 January
2020.
• Declared bonuses were 3% in both 2019 and 2020.
(a) (i) Calculate the total bid value of the unit fund for a single policy in force on
1 January 2021.
(ii) Calculate the asset share per policy in force on 1 January 2021.
(b) A director has pointed out that the office’s conventional with-profits contracts
do not have guaranteed surrender values. She has suggested removing the contractual basis for surrender values from these unitised with-profits contracts,
for consistency. Comment on this suggestion, from both the office’s and the
policyholder’s points of view.
(c) The office holds policy values for its unitised with-profits policies equal to the bid
value of the units. Comment on advantages and disadvantages of this practice