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This website shows how a unit linked product, with back end load, can be processed.

It is a simulated website with several unit linked policies. The simulation is carried out over several months. Premiums are received and processed. The monthly charge are processed for each policy to cover the cost of insurance, administration and riders. A special charge is deducted from the basic accounts each month.

An important feature of this simulation is the audit report. It shows a daily reconciliation of the total balance for all the policies, and takes into account the premiums paid and the charges. This audit report gives the assurance that each day's processing is intact. It will also highlight any unauthorized changes to the database.

With a complex product, such as the back end load product, there is scope for a software bug to cause the calculations to be done incorrectly. This may affect a few or many policies. It can easily go undetected.

If there are any differences, it will be highlighted for the operations staffs to check.

The audit staff can select a policy and view the statement showing all the cash flows into and out of each investment account. The staff can check that the allocation of the cash flows and the computation of the investment units are done correctly. 

As this is a complex product, there are many transactions for each policy. This can be checked conveniently in a webpage. 

In practice, the staff should select and check the transactions for a few policies each day.

This is another convenient way to check the computations. The audit staff select a policy and a date and view the transactions that go into and out of each investment account for the day.

To reduce the number of transactions, I have added all the deductions (i.e. cost of insurance, administration and riders) into one item (instead of three to seven items) and used the total to be apportioned to the accounts. This reduces the number of transactions that have to be kept and produces the same result.

Tan Kin Lian

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