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IAI Actuarial Core Principles · Actuarial Mathematics for Modelling · Non-unit reserves for unit-linked contracts (zeroisation)

For a unit-linked policy, which item below is normally part of the non-unit cash flow rather than the unit cash flow?

The bid-offer spread on units purchased is a non-unit cash flow, because it is the part of the premium not allocated to the unit fund and so belongs to the insurer's non-unit fund. Allocated premiums, unit growth and maturity unit payouts all belong to the unit fund.

  1. AThe allocated premium invested in units
  2. BThe bid-offer spread taken on purchase of unitsCorrect
  3. CThe investment growth credited to the unit fund
  4. DThe deduction of the fund management charge from the unit fund to pay the policyholder's unit value on death
  5. The unit fund paid out on maturity

Explanation

The bid-offer spread is the part of the premium not allocated to units, so it flows to the non-unit fund as income. The allocated premium, the fund growth and the maturity unit value are unit fund items. The option on deducting charges to pay the unit value on death is muddled and is not a non-unit item.

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