Hi
Could anyone please help me with the below doubt:
Question1:
Core reading says:
"Finally, a useful way to summarise the issues on profit for the equating policy values method is as
follows:
The left-hand side is like a surrender value.
The right-hand side is like a new contract.
To find the total expected profit from the altered contract, add the two bits together.
Here, ‘left-hand side’ and ‘right-hand side’ relate to the policy values calculated before and after
the alteration."
To me LHS seems to be old policy value and the RHS to be new policy value.
How by adding both of these values will land up to the total profit from the policy?
Question2:
Core Reading says:
"The method will produce consistent surrender values immediately before and after alteration if the same methods and assumptions are used as for calculating surrender values."
Even after using same basis how we can get the same surrender value from the new and the old policies, because I think that some part of the old/new policy would be used to pay out the alteration charges as well(tv=tv'+AL). The level of deviation between the surrender values from old and new policy will depend on the amount of alteration charges.
Please let me know your thoughts on this.
Thanks
Vatsal
Last edited by a moderator: Sep 3, 2021
