Solvency 2 practice question 11.7

[phoenix2019]

Premium frequency

The non-unit component is more likely to be negative for regular premium policies, since charges
are more likely to be taken up-front for a single premium policy (eg as a % of the premium).

Is single premium policy more likely to have negative non unit reserve or regular premium policy?? Can anyone explain with good reason ?

From the solution of question 11.7 of chapter 11, it appears regular premium is more likely to have negative on unit reserves. But why?

 

[Em Francis]

Premium frequency

The non-unit component is more likely to be negative for regular premium policies, since charges
are more likely to be taken up-front for a single premium policy (eg as a % of the premium).

Is single premium policy more likely to have negative non unit reserve or regular premium policy?? Can anyone explain with good reason ?

From the solution of question 11.7 of chapter 11, it appears regular premium is more likely to have negative on unit reserves. But why?

Do you mean the non-unit reserve?

This is because, under RP, there are future premiums (and therefore charges) which should outweigh future expenses and future benefit costs. Under SP, there are no future charges arising from the premiums (eg unallocated premium). These charges would be taken at the start for SP and so the profit loading would be taken at the start with likely positive non-unit reserves.

Help?